Business confidence in Scotland fell five points during January to 10%, 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 17 points at 8%. When taken alongside their optimism in the economy, up six points to 12%, this gives a headline confidence reading of 10%.
Scottish businesses identified their top target areas for growth in the next six months as evolving their product and service offer (42%), investing in sustainability (29%) and investing in their teams (27%).
The barometer surveyed 1,200 businesses - including 98 in Scotland - between 3 and 17 January, finding a net balance of 14% expect to increase staff levels over the next year. This is up from December, when a net balance of 11% of businesses reported plans to make new hires.
Overall UK business confidence climbed in January, with firms reporting their highest confidence levels since July last year.
Business confidence increased by five points to 22% and the net balance of businesses feeling optimistic about the economy doubled on December’s reading to 16%.
Ahead of National Apprenticeship Week in February, 30% of businesses across the UK reported that they are looking at opportunities to grow by investing in staff development and training. A net balance of 17% of firms reported plans to create new jobs in the next 12 months.
Chris Lawrie, area director for Scotland for Bank of Scotland Commercial Banking, said: “Ongoing pressures from wider economic challenges are clearly continuing to impact Scottish businesses, but confidence remains in positive territory and firms’ resilience shines on.
“Over the next few months as concerns such as rising costs continue, it is important firms keep a close eye on cash flow - having reserves ready for when challenges hit makes managing turbulent periods easier.”
For the second month in a row, confidence in the manufacturing and service sectors increased, with manufacturing rising to 28% (up 15 points) and services up to 25% (up seven points).
Business confidence in construction was down two points to 27%, while retail confidence fell for the second month in a row to 7% (from 13%), the lowest level since February 2021.
Hann-Ju Ho, senior economist for Lloyds Bank Commercial Banking, added: “Business confidence continues to improve following the December boost.
“Firms are clearly more optimistic about the wider economy and this is driving the increase, helped by precursory signs that wage and other cost pressures may be easing.
“It is still a tough environment for businesses, with high energy bills remaining a concern during the winter months, but there are grounds for optimism for 2023 if inflation starts to trend lower.”
Don't miss the latest headlines with our twice-daily newsletter - sign up here for free.
