Scottish business confidence falls as Omicron hits

Scottish business confidence fell 3% to 24% during December, according to the latest Business Barometer from Bank of Scotland Commercial Banking.

Companies in Scotland reported lower confidence in their own business prospects month-on-month, down one point at 22%.

When taken alongside their optimism in the economy, down six points to 26%, this gives a headline confidence reading of 24%.

Around 1,200 businesses are questioned monthly, with this survey taking place between 26 November and 10 December. The first two cases of Omicron in the UK were confirmed on 27th November, with nations announcing the reintroduction of restrictions in the week commencing 6 December.

Around 23% of businesses in Scotland expect to increase staff levels over the next year, up 9% on last month.

Overall, UK business confidence was unchanged from November’s reading at 40%. While confidence remained above the long-term average (28%), during the second week of sampling when the Omicron variant emerged, confidence fell to 32%.

Firms remained positive about their future trading prospects, up 4% month-on-month to 43%.

The net balance of businesses planning to create new jobs also increased by 3% to 33%. Optimism in the economy overall remained positive at 38%, down just 3% on November’s survey result.

In the industry sectors, construction recovered to 39% from November’s seven-month low of 28%, following a minor easing in supply chain disruptions.

Despite a slight fall in confidence in manufacturing to 40%, trading prospects in the sector have remained higher than the whole economy throughout this year.

There were also small declines for retail (43%) and services (39%) ahead of the festive period.

There have also been some marked differences in these sectors in recent months, with notable strengths in the professional services sector (including finance) and in IT and communications.

The current three-month average sentiment among hospitality firms is at its lowest level (24%) since the first quarter of the year (4%). This has been fuelled by a significant monthly drop of 48% to 6% between November and December.

Fraser Sime, regional director for Scotland at Bank of Scotland Commercial Banking, said: “It’s great to see levels of business confidence across Scotland remain strong, especially in the face of clear challenges.

“The pandemic continues to cause disruption for many, and the reintroduction of some restrictions will pose difficulties, particularly for those in the hospitality and leisure sectors who may find festive celebrations quieter than they hoped for.”

Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said: “It is a challenging end to 2021 as businesses are now having to adapt to the new Omicron variant and resultant restrictions across the UK – nevertheless, business confidence remains resilient and above the long-term average due to a rise in trading prospects, while pay and price expectations continue to be elevated.