Business confidence in Scotland is now firmly in negative territory amid difficult economic conditions and recent political turmoil, a survey of chartered accountants has found.
Sentiment tracked by ICAEW’s Business Confidence Monitor during the fourth quarter revealed confidence at -16 in Scotland, having fallen over the past five quarters. Nationally, confidence stands at -16.9 on the index.
A total of 51 Scottish chartered accountants responded to the survey between 25 July and 14 October.
Though domestic sales have remained healthy, businesses have been impacted by higher energy costs and interest rates, as well as continued labour market challenges.
As the Chancellor considers how to balance Britain’s books, he must also use Thursday’s Autumn Statement to restore confidence, credibility and long-term environmentally sustainable growth to the UK economy, argued the institute, adding that further targeted support could be needed to help businesses grappling with the ongoing cost of living crisis when energy support schemes end in April.
Half of Scottish businesses cited the availability of non-management skills as a growing challenge - the issue being the highest on record for the survey and the most prominent issue for companies.
Staff turnover has continued to be a problem, reported by 46% of companies.
As a consequence, salaries are rising at the joint fastest rate in the UK, along with Yorkshire and the Humber, up 4.3% year on year. Salaries are expected to increase at a lower rate in the next year, possibly suggesting Scottish companies expect labour shortages to ease slightly.
Employment has grown by 3.1% in the year to the fourth quarter, with a further rise of 2.5% expected in the next 12 months.
A third of companies said they were challenged by the tax burden, the highest rate since the monitor began and more of a challenge in Scotland than in the rest of the UK.
Two in five Scottish businesses cited marketplace competition as a growing challenge, the highest rate in the UK.
Three in 10 businesses said late payments were a growing challenge. Along with Yorkshire and the Humber, this is the highest rate in the UK, and suggests that Scottish companies are experiencing more difficult financial conditions.
Sales growth had begun to decline, but remained healthy, with growth of 5.3% in the year to date and a further 5.9% rise expected over the next 12 months. Exports grew 3.6%, which is lower than domestic sales but in line with pre-pandemic growth.
Scottish companies reported the biggest rise in input costs since late 2004, caused by a surge in global energy prices and ongoing supply-chain difficulties, with no let-up forecast over the next year.
Selling prices saw their fastest rise since 2005, while profits also increased. Companies expect profits to increase at a faster pace over the next year, likely due to strong expectations for domestic sales.
ICAEW Scotland director David Bond said: “It is unsurprising that confidence among businesses in Scotland is firmly in negative territory given the tough economic conditions and political turmoil businesses have faced since the summer.
“As well as a number of staffing challenges, our businesses have told us that they face financial difficulties too, with issues from late payments more prevalent in Scotland than in the rest of the UK.
“On Thursday, the Westminster government must outline a plan to restore confidence, generate environmentally sustainable long-term economic growth, and bring opportunity and prosperity to our left-behind communities and regions.”
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