Business investment flatlines as high interest rates see Scots firms fight for survival

High interest rates are taking their toll on business investment in Scotland amid calls for governments on both sides of the Border to ramp up support for hard-pressed companies fighting for their survival.

Releasing its latest economic indicator report, the Scottish Chambers of Commerce (SCC) said concern over rates had seen a “significant” rise, increasing from 37 per cent of firms in the previous quarter to half of those surveyed - a five-year high. Concern over inflation also remains high, though that measure has eased slightly over the quarter, down to 70 per cent of firms from 75 per cent in the last quarter.

Fewer businesses are indicating that they will raise prices this quarter compared to last, with just under half of firms (48 per cent) saying they were likely to do so compared to 55 per cent previously.

Stephen Leckie, president of the SCC, said: “These results indicate challenging trading conditions for firms, with inflation, interest rates and labour shortages preventing growth and delaying investment. For too many businesses, the priority is firmly stuck on survival. Whilst business confidence is starting to pick up from the low levels of 2022, this renewed optimism is not translating into sustained performance and output from firms necessary to get our economy firing again.

Stephen Leckie, president of the Scottish Chambers of Commerce: 'For too many businesses, the priority is firmly stuck on survival.'

“If Scotland is to maintain its competitiveness domestically and internationally, direction and impetus is needed from government north and south of the Border in upcoming budget statements. These must outline clear steps to support business which instil confidence for investment and help stimulate growth.”

While, on balance, more firms continued to report increases in investment than falls, more than half (55 per cent) reported no changes to total investment, which is also a five-year survey high. Meanwhile, 57 per cent of companies reported no changes to training investment levels.

The quarterly economic indicator is Scotland's longest-running business survey, operating since 1990. The latest survey was conducted between August 21 and September 18 and 380 firms responded. Some 93 per cent of respondents to the survey were small and medium-sized enterprises (SMEs) - classed as businesses with fewer than 250 employees.

Leckie said: “Our data shows that firms are becoming more concerned of rises in interest rates, which are designed to suppress consumer spending and make borrowing more expensive, both of which significantly impact firms. Looking ahead, we would urge the Bank of England to provide clarity on the future direction of interest rates or begin to allow time for the lag between rate hikes and the full effect on spending to be fully observed, so that there is less risk of causing unnecessary economic damage.

“Scottish firms and indeed firms across the UK are actively pausing investment decisions. Businesses urgently require upcoming fiscal events to provide some respite for those struggling to survive and incentives for those looking to expand. To that end, we urge the Scottish Government to use the progress made through the New Deal for Business to demonstrate that it can listen to business and take action that will support growth, such as maintaining a fair personal taxation regime, reviewing non-domestic rates, and reducing regulation,” he added.

Scottish firms less confident than others in UK as soaring costs take toll