Analysis: are Scotland’s businesses fully back in confidence mode?

Scotland’s businesses undeniably face continuing stormclouds of pressures – but, amid major surveys continually running the rule over its outlook, to what extent are such firms now expecting to see the sunshine after the rain?

The latest finger-on-the-pulse data looking at the key cog in the economy north of the Border comes via the Scottish Chambers of Commerce’s (SCC) Quarterly Economic Indicator published today. And the organisation – which claims to be the largest business network in Scotland – says its findings confirm that the beginning of 2023 showed “signs of hope” for Scottish business, but “provided welcome respite for some sectors of the economy more so than others, after a difficult end to 2022”.

Such cautious, caveat-filled optimism follows the news last week both that business confidence in Scotland rose 24 points during March to 38 per cent, its highest level since May 2022, according to the latest Business Barometer from Bank of Scotland Commercial Banking, and that Scotland’s economy will return to full-year growth in 2024, the EY Item Club has predicted.

The SCC today, in what it says is Scotland's longest-running economic survey of its kind (which this time round polled 320 firms, 95 per cent of which have fewer than 250 employees) flags specific cause for cheer in, say, recruitment difficulties falling from being reported by 47 per cent of companies this quarter from 52 per cent in the previous period. And the number indicating that they intended to raise prices in the next three months fell slightly quarter on quarter, but nonetheless more than seven in ten said they planned for their offering to cost more at the till in Q2.

'The beginning of 2023 has seen improvement in the prospects of some sectors of the Scottish economy,' says SCC president Stephen Leckie (file image). Picture: contributed.

Improvement

SCC president Stephen Leckie – whose other titles include chairman of the Scottish Tourism Alliance – said: “The beginning of 2023 has seen improvement in the prospects of some sectors of the Scottish economy, in line with recent economic data that has been more positive than previously expected.”

However, he added that the SCC survey indicates that many of the big challenges that faced firms in 2022 are sticking around this year, with the organisation seeing progress in Q1 coming from a “very weak base”. It added that while confidence has generally improved, it is “yet to translate into an overall improvement of business conditions”.

Mr Leckie also said: “Cost pressures continue to rise alongside concern from energy bills, inflation, labour shortages, alongside growing uncertainty in the global economy.” Indeed the SCC uncovered how three-quarters of those surveyed reported increased cost pressures from energy bills, and seven in ten said they see these originating from labour outlays, including salaries.

More firms reported a fall in cashflow (43 per cent) than an increase (31 per cent), seen as reflecting the difficulties faced by sectors including retail. Picture: Getty Images/iStockphoto.

Meanwhile, more firms reported a fall in cashflow (43 per cent) than an increase (31 per cent), seen as reflecting the difficulties faced by the retail and tourism sectors in particular. The SCC cited a Highlands tourism firm complaining of high energy and mortgage outgoings, adding: “There is too much uncertainty, people are frightened to come out and spend. We need help, not more pressures." However, on a related note, nearly 90 per cent of food and drink firms in Scotland polled last week said they were still optimistic about the £15 billion sector's growth prospects.

The SCC also looked in its survey out today at inflation – which rose to 10.4 per cent in February from 10.1 per cent in January – with 82 per cent of respondents reporting increased anxiety over this issue. On this topic, Mr Leckie said: “The recent surprise jump in UK inflation... will have undoubtedly set off some nerves in the business community.”

Also flagged in the latest Quarterly Economic Indicator was business regulation, and the SCC chief said firms anecdotally highlighted increased concern over current and or future burdens in this regard. “These include the deposit return scheme; short-term lets; alcohol advertising; tourism visitor levy; rent controls; to name but a few… Businesses will be looking for action on regulation very soon.”

The Chambers also quoted the boss of an unnamed retail firm in Renfrewshire branding the controversial deposit return scheme “unworkable… it will create a barrier to trade outside of Scotland and therefore put my business at risk of closing, as 90 per cent of my revenue comes from outside of Scotland”.

Economy

Commenting on the latest SCC data, Professor Mairi Spowage, director at the University of Strathclyde's Fraser of Allander Institute, said the economic backdrop means it “feels a little premature to be celebrating that the UK has dodged a recession”. Official figures published last month showed that the UK’s economy had returned to growth in January, while a separate survey found that more UK business sectors reported an increase in output than at any time in the past ten months in February.

Professor Spowage added: “Whilst it may indeed be true that a technical recession will be avoided, it is still going to feel like a difficult time for the economy… So, the overall feeling in the economy seems to be that things are not as bad as we feared a few months ago, but that the bar was pretty low. All of this is shown in the survey results today, with firms a bit more positive about the outlook for business, but much more negative about investment intentions.

“This is concerning for the medium to long-term capacity of our economy to grow. The increasing uncertainty in the economy at the moment is unlikely to provide the environment to incentivise the investment that the economy needs.”

Taking a determined, all-hands-to-the-pump approach is Mr Leckie, who says the SCC is “ready to work with government to bring care and focus onto... pressing challenges for the economy that must come with agile and decisive action that supports firms through the uncertainty ahead”. He will surely be aiming to bring the underlying optimism he has outlined as boss of Crieff Hydro Family of Hotels. “For me the pot’s half full,” he has previously said.