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Optimism plummets as Brexit fears mount

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SCOTTISH small businesses’ confidence has plunged in the third quarter, amid fears over the impact of a no-deal Brexit.

Research published today by the Federation of Small Businesses reveals 56 per cent of its members north of the Border believe a no-transition, no-deal Brexit would impact negatively on their enterprises. Only 5% think it would have a positive effect, with the remainder saying it will have no impact or they do not know.

In the UK as a whole, the FSB found that 48% of small businesses believe a no-transition, no-deal Brexit will have a negative impact on their businesses.

The FSB found that 58% of small businesses in London, which like Scotland voted unsuccessfully to remain in the European Union, believed that Brexit would have a negative effect on their enterprises, with 8% seeing a positive impact.

The business organisation published its research as Andy Haldane, chief economist of the Bank of England, flagged indications that businesses’ worries over Brexit had risen sharply over the past few months.

Citing write-ups of conversations about the economy between the Bank of England’s agents around the UK and their company contacts, Mr Haldane said: “These write-ups enable a semantic search to be carried out to identify the key themes or narratives emerging in companies’ conversations.”

Mr Haldane, in a speech in the Estonian capital of Tallinn, told his audience: “You will be unsurprised to hear that a key theme among companies over recent quarters has been uncertainty surrounding Brexit. While mentions of Brexit have fallen from their referendum peak, it is notable that they have picked up sharply over the past few months, with measures of uncertainty following suit.”

The FSB’s small business confidence index for Scotland has fallen from +5.1 points to -13.2 points during the third quarter. This index measures business owners’ assessment of conditions facing their enterprises.

It has fallen from +12.9 points to -1.7 points in the UK as a whole during the third quarter.

The FSB said: “While it is unclear exactly what role the Brexit negotiations [are] having on confidence levels, it would be surprising if the uncertainty around markets, supply chains and staffing was not feeding through to consumer and business sentiment.”

It also highlighted general pressure on UK household finances.

The FSB: “Underlying structural weakness in certain sectors is also becoming apparent as consumer-facing firms deal with the consequences of a long-term squeeze on real pay growth.”

FSB Scotland policy chair Andrew McRae said: “The slide in business optimism over the last three months is perhaps unsurprising given the very public debate about the future of the UK outside of the EU.”

He added: “If you sell your products to the EU, buy goods from the EU or if your business relies on staff from the EU, you’re likely to see a no-deal Brexit as a significant threat to your business.”

Only one in seven Scottish and UK small businesses has starting planning for a no-deal Brexit, the FSB research shows. And 31% of Scottish businesses say they plan to reduce investment ahead of March 2019, when Brexit is due to take effect.

The FSB survey signals overall falls in Scottish small businesses’ revenues, profits and employment in the third quarter. Scottish businesses reported a spike in overheads, with the cost of fuel cited by many, the FSB noted.

Separately, figures published yesterday by the Scottish Government show the economy north of the Border grew faster than that in the UK as a whole for a second consecutive quarter in the three months to June. Scotland recorded quarter-on-quarter growth of 0.5% in the three months to June, ahead of expansion of 0.4% in the UK as a whole. In the first quarter, the Scottish economy grew by 0.4%, double the UK’s 0.2% rate of expansion.

Scottish manufacturing output grew by 0.9% in the second quarter. Construction output rose by 1.8%, having dropped by 1.4% in the first quarter. The services sector expanded by 0.4%.

Source : HeraldScotland

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