Scotland’s economic recovery facing 'significant threat' from soaring costs and staff shortages

Scotland’s economic recovery is under “significant threat” from the energy crisis, rising costs and staff shortages, business leaders today warned.

The latest quarterly survey from the Scottish Chambers of Commerce (SCC) points to strong growth across most sectors as firms continued to benefit from the easing of Covid restrictions and an economic rebound over the summer months.

However, the third quarter also saw “mounting concern” from businesses over rising cost pressures and external factors such as inflation and taxation rises.

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The SCC, which has been publishing its quarterly economic indicator since 1990, said that across all sectors, levels of concern over inflation have now reached record highs.

Firms continued to benefit from the easing of Covid restrictions and an economic rebound over the summer months.

Surges in the cost of raw materials and shipping, global supply chain disruption and the UK government’s decision to raise national insurance contributions were cited by firms as key factors.

Reported rises in business confidence are now being undermined by energy concerns, the report noted, with gas supply shortfalls and an over-reliance on volatile imports putting additional cost pressures on businesses.

Meanwhile, for the second successive quarter, all export order and sales trends reported in the survey have continued to fall.

The slow pace of reopening up international travel, continuing disruption linked to the pandemic and adjustment to post-Brexit trade were all contributing factors cited by businesses.

SCC president Tim Allan said: “The survey results indicate that confidence and domestic sales are generally strong across all sectors surveyed, with expectations in line with improving economic forecasts that the Scottish economy should return to pre-pandemic levels in the spring of 2022.

“After what has been an extremely challenging past 18 months for Scottish businesses, many are now looking and working towards building back to a new normality.

“However, that progress is under significant threat with increasing concern over the emerging energy crisis driving up business costs, inflation and taxation, the cost of raw materials and shipping, all of which are fuelling uncertainty at a time when businesses urgently need confidence and certainty to continue their recovery from the pandemic.

“An additional growing challenge for business is instability in the labour market and persistent skills shortages.

“There is no time for timidity when it comes to action to support businesses and that’s why the Scottish and UK governments must urgently back business with a clear economic plan and budgets focused on business recovery,” he added.

Mairi Spowage, director of the Fraser of Allander Institute, which helps to undertake the research, said: “These results signal an important boost in optimism across the Scottish economy, driven by the removal of most of the pandemic related restrictions over the summer months.

“Despite this positivity, there are still a number of risks to the fragile economic recovery that we have seen to date. It is unknown how many of the workers who were on furlough at the end of September will become unemployed or unable to secure the type and level of work they want.

“As well as the risk of joblessness, labour shortages are becoming clear in many sectors, threatening goods shortages and adding to wider inflationary risks.”

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