SMALL business confidence in Scotland has dropped to near record lows amid “bruising” trading conditions, new figures show.

The Federation of Small Businesses (FSB) report reveals confidence rates in Scotland trail those across the UK by almost 19 points. It wants the Scottish Government to prioritise closing this “persistent confidence gap”.

In a survey of FSB members the confidence index fell to minus 21.4 points in the final quarter of 2017, down from minus 15.3 in the previous quarter. The drop takes confidence to its second lowest level in the five years the survey has been conducted, with the final quarter of 2016 the lowest.

Across the UK business confidence also fell over the last three months of 2017, dropping from 3.6 points in the previous quarter to minus 2.5, entering negative territory for the second time since 2013.

The report states: “In annual terms, Scottish GDP growth is falling behind UK levels, with Q2 year-on-year growth at 0.5 per cent compared to 1.5 per cent for the UK.

“The persistent confidence gap between UK and Scottish small businesses suggests that the disparity in economic performance will continue.”

More than half (52 per cent) of Scottish businesses surveyed said the domestic economy was a barrier to growth in the last three months of 2017, however this has fallen slightly since the same period last year.

A net balance of 17.5 per cent respondents reported a fall in gross profits in the last quarter of 2017, up from 16 per cent in the second quarter and down from the 18.9 per cent recorded in the same period in 2016.

Firms reporting reduced employment levels increased significantly to a net balance of eight per cent in the last three months of last year compared with one per cent the previous quarter, however those planning to increase investment rose for the second consecutive quarter to 15.2 per cent.

FSB Scottish policy convener Andy Willox said: “The final months of last year saw Scottish and UK small business confidence slip to near record lows.

“Last year’s bruising trading conditions are most likely to blame, compounded with concerns regarding Brexit and worries about local economies.

“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.

He added: “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.

“While these figures were gathered ahead of December’s Scottish Budget, it seems unlikely that the planned income tax rises will reverse this trend.”

Verve carried out the survey for the FSB between November 9 and 25, with 106 Scottish responses and 1084 UK-wide.