Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 31 January 2008 and unaudited.

Performance at month end is calculated on a capital only basis

                            One      Three      One     Three       Five      
                          Month     Months     Year     Years      Years     
Net asset value           -8.6%     -20.8%   -14.4%     40.3%     171.8%    
Share price               -2.0%     -21.4%   -18.6%     38.1%     174.9%    
Hoare Govett Smaller      -7.5%     -17.3%   -19.1%      9.1%      81.2%   
Companies plus AIM (ex                                                         
IC's) Index (blended)*                                                                   

Sources: BlackRock and Datastream.

*with effect from 1 September 2007 the Hoare Govett Smaller Companies plus AIM
(ex Investment companies) Index replaced the FTSE SmallCap Index (ex Investment
Companies) as the Company's benchmark. The above index has been blended to
reflect this.


At month end                                                         
Net asset value (debt at par value):                379.66p          
Net asset value (debt at fair value):               374.37p          
Share price:                                        309.25p          
Discount to NAV (debt at par value):                  18.5%            
Discount to NAV (debt at fair value):                 17.4%            
Net yield:                                             1.6%             
Total assets:                                       £206.2m          
Gearing:                                              12.0%            
Ordinary shares in issue^:                       48,509,708       

(^excluding 1,343,815 shares held in treasury)


Ten Largest Sector                                                             
Weightings                                        % of Total Assets
                                                                               
Support Services                                           14.3
Software & Computer Services                               12.2
Oil & Gas Producers                                        11.5
General Financial                                           8.7
Industrial Engineering                                      8.4
Industrial Metals & Mining                                  7.5
Real Estate                                                 5.4
Aerospace & Defence                                         4.4
Pharmaceuticals & Biotechnology                             3.8
Electronic & Electrical Equipment                           3.8
                                                           ----
                                                           80.0
                                                           ====

 
Ten Largest Equity Investments (in alphabetical order)                         
Company                                                                        
                                                                               
Aveva                                                                          
Brewin Dolphin                                                                 
BSS Group                                                                      
Dechra Pharmaceuticals                                                         
ITE Group                                                                      
Mouchel Parkman                                                                
Rathbone Brothers                                                              
Spirax-Sarco                                                                   
Ultra Electronics                                                              
Victrex                                                                        
                                                                               
                                                                               
Commenting on the markets, Mike Prentis, representing the Investment Manager
noted:

January was another difficult month with stockmarkets unsettled by further
"credit crunch" worries. The Company's net asset value ("NAV") fell by 8.6%,
the benchmark index fell by 7.5% and the FTSE 100 Index fell by 8.9%.

The main contributors to relative underperformance in January were the level of
gearing in the Company, and our holdings in Severfield-Rowen, Ultra Electronics
and WSP Group. The Company has remained about 10% geared throughout recent weak
markets; the impact of this in January was 75 basis points of underperformance. 
The remaining underperformance was stock specific.  Severfield-Rowen released 
a trading statement which confirmed it had met its brokers expectations for 
2007 earnings, but commented that despite a strong order book, some contracts 
in its pipeline (but not in the order book) had slipped. Next years earnings 
have been downgraded by about 10% and the shares fell 40% on the day! We 
regard this reaction as overdone, especially given that there is no other 
independent company that can realistically be considered to make and erect 
the structural steelwork for the new 2012 Olympic Stadium, and with the 
record of completing steel construction contracts such as Terminal 5
at Heathrow and Arsenal's Emirates Stadium. Ultra Electronics shares had
performed well in December on the back of a very positive trading statement
which indicated that it continues to trade very well. It has excellent revenue
visibility covering many military and civil contracts and cash generation
continues to be strong. Some of the December share price gain was given back in
January. WSP, a leading engineering consultancy, continues to trade well, but
the market is concerned that its property division will struggle to make
further progress. We see WSP as being fairly well diversified within property
and regard the shares as good value although unloved at present.

In relative terms, the best stock contribution came from Aveva. Aveva had a
very positive interim management statement leading to further current year
earnings upgrades of 19%.

We disposed of our holdings in Kiln, following the bid by Nokia Marine and a
number of smaller holdings.

The largest new holding during the month was Nighthawk Energy, an oil & gas
exploration company with significant acreage particularly in Utah and Colorado.
It has started a drilling programme and is hopeful of bringing its gas and
potential oil assets into production quickly. We took part in a placing to help
fund its drilling programme.

The market has remained uncertain and pessimistic in recent weeks. There is
little interest in smallcaps, and hedge funds operating in the small and mid
cap space have continued to reduce or eliminate net long positions by shorting
our universe. The results season for June and December year end companies is
fast approaching and it will be very interesting to see the outlook statements
accompanying results. To date, the trading statements for our portfolio
companies have, with a few exceptions, indicated that trading remains sound. We
expect companies that disappoint to be severely treated, but hope these will be
rare in our portfolio. We have maintained our gearing in falling markets partly
because trading news from our portfolio has generally remained good, and partly
because stock liquidity is poor and on a market recovery we do not expect it to
be much better. Had we reduced gearing we would not have been confident of
being able to buy back the stocks we like in thin markets.

Latest information is available by typing www.blackrock.co.uk/its on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV
terminal).

25 February 2008


   D