Scottish middle market businesses have stopped hiring and investing due to inflationary pressure, recession fears and wage pressures.
RSM UK’s latest Middle Market Business Index showed that fewer firms (41%) planned to increase recruitment in the second quarter, down from 52% in the previous quarter.
The survey, conducted during April among 700 senior executives at middle market companies, showed a nine point drop to 54% in the number of businesses planning to recruit more staff over the next six months.
The number of businesses planning to increase capital expenditure also dropped, from 51% last quarter to 38% in the second quarter.
The index was developed in partnership with Moody’s Analytics and The Harris Poll. Readings above 100 indicate economic expansion and below 100 indicate contraction.
It showed a drop from 134.9 in quarter one to 120.9 in quarter two in headline data – the clearest signal yet of the impact that economic headwinds are having on the middle market.
However, RSM conceded that the index suggested that the middle market was still expanding.
But the percentage of firms stating they expect the economy to improve over the next six months also decreased by 21 points.
Thomas Pugh, economist at RSM UK, said: “With the perfect storm of headwinds facing middle market businesses it’s not surprising to see them cautiously take the foot off the gas when considering investing in staff and vital capital expenditure.
“However, now is not the time to be cutting back on investment - as we emerge from the pandemic, businesses need to commit to enhancing productivity to stimulate the economy.”
Alex Tait, RSM UK’s regional managing partner for Scotland and Northern Ireland, added: “Retaining and attracting staff is a key challenge for Scottish businesses.
“The competition for talent is fuelling wage inflation but businesses are also increasingly becoming more creative to offer additional benefits to help them stand out in a tight labour market.”
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