FSB Scotland Small Business Index, Q1, 2025
24/04/2025
FSB Scotland, 8th Floor, 58 Waterloo St, Glasgow, G2 7DA, scotland.policy@fsb.org.uk fsb.org.uk
Small Business Index Report – Scotland Q1 2025
The Small Business Index (SBI) in Scotland increased by 51.9 points in Q1 2025, reaching a score of15.3. The negative reading means that the number of Scottish small businesses expecting their performance to worsen over the coming quarter exceeds the number expecting their performance to improve.
The improvement in the index was driven by a decrease in the share of businesses expecting performance to worsen. This figure is now 46.0%, down from 74.8% in the previous quarter.
Between Q4 2024 and Q1 2025, Scotland had the largest improvement in the index of any region, suggesting less widespread pessimism. This is likely driven by the relatively stronger performance of the Scottish economy compared to the UK as a whole. Notably, its labour market is robust, with low unemployment and strong discretionary income growth.
The UK-wide SBI rose to -40.7 in Q1 2025 from -64.5 in Q4 2024. While the index remains negative, indicating that more businesses expect conditions to worsen rather than improve, the latest reading suggests slightly less widespread pessimism. Nevertheless, the SBI remains firmly in negative territory, reflecting significant concerns about the UK’s domestic economy, which is characterised by ongoing weak performance.
The net balance of Scottish small businesses reporting revenue growth stood at -19.5% in Q1 2025. This is an improvement from the Q4 2024 net balance, which stood at -36.7%. The Q1 2025 figure for Scotland was stronger than the UK-wide equivalent of -25.4%, supporting the nation’s stronger SBI score.
Looking ahead, a net balance of 9.6% of small businesses in Scotland expect revenue expansion. This represents a shift in the revenue growth outlook from last quarter, when the net balance of businesses expecting revenue increases stood at -31.3%, indicating that more businesses were expecting revenue contractions. Yet again, Scotland has a
stronger outlook compared to the UK, where the equivalent net balance figure is -8.4%.
A net balance of 7.2% of Scottish small businesses recorded decreases in employee headcount in Q1 2025. This compares with a UK-wide net balance of 12.6%. This aligns with broader labour market data, which show Scotland performing slightly stronger than the UK as a whole. For instance, the unemployment rate in Scotland fell to 3.7% in the three months to January, while the UK-wide equivalent increased to 4.4%.
Looking ahead, Scotland’s small businesses expect no change in headcount numbers in Q2 2025 This represents a possible turning point after consecutive periods of small businesses expecting headcounts to decrease on aggregate.
A positive net balance of Scottish small businesses are seeking to expand over the next 12 months, at 26.6%. This was firmly up from the reading of 5.4% in the previous quarter. This sentiment aligns with business expectations of revenue growth and a stable headcount in Scotland. Despite the stronger growth aspirations relative to last quarter, businesses still face downside risks stemming from a weaker UK growth outlook and rising global uncertainty.
Amongst those aspiring to grow, the area perceived to be the greatest barrier is the domestic economy, with 66.5% of respondents in Scotland reporting this. The tax burden was the next most cited barrier for growth, selected by 40.0% of small businesses. This aligns with UK-wide tax changes set to take place in Q2 2025. With rising global uncertainty, the share of Scottish businesses foreseeing the foreign economy as a barrier increased to 13.6% in Q1 2025, up from 6.3% in Q4 2024.
A net balance of 85.2% of small businesses in Scotland experienced rising costs in Q1 2025. This is up from 74.2% in Q4 2024 and coincides with persistently higher cost pressures in the economy, as evident in the higher readings of the Consumer Price Index. These pressures are likely to worsen in the coming months with energy price hikes and higher labour costs set to
have an effect. This latter category will result from the increased rates of employers' National Insurance contributions and uplift in the National Living Wage implemented for the new financial year.
Utility costs were the most commonly reported cause of changing costs in Q1 2025, with 55.4% of Scottish small businesses selecting this option. This was closely followed by labour costs, with 50.0% citing this. The share of small businesses selecting regulations as a source of changing costs recorded a slight increase to 23.7% in Q1 2025 from 20.0% in Q4 2024.