Small and medium-sized Scottish firms are suffering a crisis of confidence.
New research by the Federation of Small Businesses (FSB) found confidence levels among SMEs plummeted in the final quarter of 2017 as firms weighed their prospects against a landscape of rising costs, lower demand and anaemic growth.
The group’s Small Business Index fell to a score of -21.4 in the final quarter of 2017, the second lowest level since records began being kept five years ago.
The situation – which also showed a significant disparity in the outlook of small firms north and south of the border, where the optimism index only marginally slipped into negative territory in the quarter – has only ever been worse in the last three months of 2016.
The FSB research found approximately one in six Scottish SMEs suffered a fall in gross profits in the final quarter of the year.
More than half of respondents said the state of the domestic economy was a barrier to their growth aspirations.
Across the UK as a whole, 73% reported increased operating costs as labour, utility and material prices continued to rise and 14% said they were planning to downsize their operations in the year ahead.
“Though business confidence has dropped across the board, these figures show a long-term optimism gap between a typical firm in Scotland and their counterparts elsewhere in the UK,” FSB Scottish policy convener Andy Willox said.
“If Scotland is to confound predictions of sluggish economic growth for the foreseeable future, then closing this gap should be a top priority.
“The new Scottish Government investment rates relief should help more businesses realise their investment intentions, but only a minority in enterprise wanted any change to Scottish income tax rates.”
FSB national chairman Mike Cherry said the late payment of invoices and the uncertainty surrounding Brexit was also weighing on small businesses.