THE performance of SMEs in Scotland improved in the third quarter of 2018 but future success remains uncertain because of Brexit, new research by CYBG has shown.
The study, conducted in partnership with the Centre for Economics and Business Research (Cebr), measured small business performance and graded it using the SME health check index.
Despite recording higher levels of performance, it found that the latest index score remains lower than it has been in previous years.
The report revealed that business health in Scotland has risen by one point to 42, with a net increase in business creation of 4%. Revenue and GDP indicators also improved but declines in SME sentiment suppressed any further gains.
CYBG and Cebr also studied the potential impact of Brexit on the UK by looking at four indicators – exports, labour supply, imports and foreign direct investment.
The report concluded that aside from Wales, Scotland is the most vulnerable part of the UK to risks associated with Brexit. Of those SMEs surveyed, 42% import goods and/or services from the EU, which is the highest share in the UK.
Additionally, Scotland is the UK’s largest exporter of beverages and tobacco, meaning EU tariffs could damage these producers’ international competitiveness.
The study found that the UK economy grew by 0.6% – the fastest rate of quarterly growth rate since 2016. However, SME confidence fell sharply by 23 points to 34 – the third lowest ever recorded.
Gavin Opperman, group customer banking director at CYBG, welcomed aspects of the report but warned that political “uncertainty” was harming SME performance. He said: “At a macro-economic level, the UK appears to be faring well. Net business creation has shown marked improvement and the share of SMEs operating below capacity has also dropped. Framing this is relatively strong GDP growth, particularly impressive given other major economies have slowed.
“Given this seemingly positive backdrop, it would be reasonable to expect this quarter’s health check index to reflect a more optimistic SME market.
“However the political and economic uncertainty driven by Brexit have sowed seeds of doubt and businesses have made it clear that they are unsure about what 2019 holds for them.”
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