Scottish business sentiment has risen to its highest level since 2021, new research reveals.
The latest Addleshaw Goddard Scottish Business Monitor report shows that while a slight majority of firms still expect weak growth in the Scottish economy over the year ahead, almost every sector reported an improvement in the volume of business in the most recent quarter – rebounding after a severe dip in the previous quarter.
In addition, the proportion of businesses expecting to reduce their operations this year due to higher bills dropped from half to around a third. This came despite only 8% of firms believing that the Energy Bills Discount Scheme, which replaced the Energy Bills Relief Scheme on 1 April, would adequately support their business in the next year.
The report – which is produced in partnership with the University of Strathclyde’s Fraser of Allander Institute – also shows that 69% of businesses, down from 81% last quarter, still expect their prices to increase by more than normal this year as supply chain prices remain high.
However, all indicators of business concern – energy costs, price of inputs, staff availability, input availability, retention of staff, and interest rates – have seen a reduction in firm’s reporting them.
Other key findings include:
- Filling vacancies remains a problem, but staff turnover is improving with the number of firms reporting difficulties in retaining staff dropping from 25% to 22%. One quarter of businesses surveyed found that it was easier than normal to retain workers in the current climate, up 10 percentage points from last quarter.
- Scottish firms expect labour costs to be their main cost driver in the next six months, outweighing inflation, credit costs, and energy bills.
- 30% of businesses reported that they were finding it difficult to purchase goods and services – down from 41% of businesses last quarter. However, firms citing prices as a driver of their supply chain issues has increased to 64%.
- A lack of UK supply continued to be the most common factor affecting firms’ ability to source goods and services, with 77% of firms reporting this in the latest survey.
- The net balance of firms experiencing an increase in their volume of business over the past three months was highest in the Accommodation & Food Services sector at 33%.
- Capital investment and export activity remain in the red.
Alan Shanks, Head of Scotland at Addleshaw Goddard, said: “Many businesses have shown incredible levels of resilience to get to this stage and while no-one will be breaking out the bunting quite yet, it’s clear that business leaders have a more positive outlook than they’ve had for some time. If inflationary pressures continue to abate there is hope for a return to real economic growth.
“However, concerns remain, not least in relation to the costs of doing business. The low levels of capital investment and export activity also sound a real note of caution.”
Professor Mairi Spowage, Director of the Fraser of Allander Institute, added: “Many will welcome the glimmer of optimism from our latest survey findings as business sentiment bounces back from the lows seen towards the end of last year.
“Inflation continues to ease slightly however, it is important to note that prices are still stubbornly high, and this is increasingly contributing to wage inflation pressures and supply chain issues facing Scottish firms. Although energy costs are starting to wane, few businesses, particularly those in hospitality, feel that government support is adequate to support them over the next financial year.”
