Scotland’s rural businesses: Confidence building but profits under severe pressure

Confidence is continuing to return to Scotland’s rural businesses but concerns over finances and profitability remain, a new survey has revealed.

Commissioned by Highlands and Islands Enterprise (HIE) in partnership with South of Scotland Enterprise (SOSE), the survey of more than 1,000 businesses was carried out by market research and polling firm Ipsos and spanned a broad range of sectors. More than half - 55 per cent - of the firms said they were confident in Scotland’s economic outlook. This is up from 50 per cent in the previous survey, which was undertaken at the start of the year. A third (33 per cent) said they had performed well over the past six months, up from 29 per cent, while those saying they had struggled eased slightly from 26 per cent to 24 per cent.

Improved performance, however, did not always equate to more profits. While 34 per cent of respondents reported an increase in turnover, only 17 per cent said profits had grown and 37 per cent said they had declined. Accommodation and food services were particularly impacted, with 61 per cent reporting decreased profit margins.

The survey took place against the continuing backdrop of “economic challenges”. Stretched personal finances, high energy costs, rising mortgage rates and ongoing industrial action all contributed to reduced economic output during May, while labour market and skills challenges remained. Almost all of the businesses (92 per cent) that participated were concerned about at least one aspect of their finances, with high and increasing costs (reported by 82 per cent) dominating. This was followed by having to charge higher prices (66 per cent) and having lower or no profit margins (53 per cent).

Martin Johnson, HIE’s director of strategy and regional economy: 'It’s a very dynamic and adaptable economy, and this is a great strength when conditions are challenging.' Picture by Paul Campbell

Without additional funding, just under a third (31 per cent) of businesses said they could only operate on their cash reserves for up to six months. In response to the challenges, a high proportion (89 per cent) said they were taking steps to improve their productivity and competitive position.

Martin Johnson, HIE’s director of strategy and regional economy, said: “We’re getting a very helpful picture of how the pressures of recent years are changing the region’s economy and how individual enterprises are responding to this. It’s a very dynamic and adaptable economy, and this is a great strength when conditions are challenging. On the whole, businesses are innovating, applying flexibility to working practices and investing in their employees. Profit margins are certainly being squeezed, but it’s heartening that confidence in the economy and business performance are improving.”

Looking ahead, nearly three quarters (71 per cent) of businesses anticipate stability in their performance over the next six months. Almost a fifth (18 per cent) expect their performance to improve, while 9 per cent anticipate a decline. The survey also sought to understand more about the potential role of technology such as automation and artificial intelligence (AI) in the business community’s response to economic challenges. Some 68 per cent of those companies using or planning to use automation felt it was important or essential to the future of their business.

Scottish business confidence turns positive for first time in year despite inflation woes