Scots economy stumbling with firms increasingly concerned over inflation and cost pressures
According to the newly unveiled findings from the Scottish Chambers of Commerce (SCC), companies have reported record levels of concern over inflation and rising cost pressures as the economy restructures following the impact of the pandemic – and they will be “forced” to raise prices.
It was revealed yesterday that inflation hit another 30-year high in the year to March, even before energy bills spiked, rising to 7 per cent – higher than the 6.7 per cent analysts had expected.
The SCC believes the negative impact on businesses of higher inflation is becoming more apparent, with all sectors of the economy reporting record levels of concern over the issue. Looking at specific industries, financial and business services reported a 15 per cent increase and the tourism sector a 14 per cent jump from the first quarter of 2021.
The business group also noted how firms are already facing obstacles linked to persistent labour-market shortages, international supply-chain disruption, soaring energy prices, and an increasing tax burden, with the situation in Ukraine another factor deepening business concern.
The survey, which took place in February and March and covered 333 firms, found that such organisations are starting to feel the impact of consumers tightening their belts.
SCC president Stephen Leckie said the survey shows growth “is now levelling off as the complexity of the challenges facing Scotland’s businesses start to take hold”, despite a period of “relatively strong” expansion.
He added that for “too many” companies, the focus is “still simply on survival – businesses who have weathered the pandemic over the past two years are now seeing problems pile up, one on top of another”.
Company finances are being squeezed by Coronavirus Business Interruption Loan Scheme repayments, rising interest rates, and major hikes in business insurance costs, Mr Leckie also said, and, amid so many hurdles, businesses “will be forced to increase prices further, cut back on investment, and protect their cashflow and profits to enable them to cope with any additional economic shocks”.
The survey found that a record seven in ten companies said they intended to raise the prices they charge.
Mr Leckie continued: “Businesses are struggling now. That is why the Scottish and UK governments need to urgently rethink the impact of new and increased taxes on business if the economy is to be given the headroom it needs to survive this crisis and grow."
The SCC boss – who also leads Crieff Hydro Family of Hotels – added that Scotland’s retail and tourism sectors, which in the survey reported “concerning” figures for both sales and investment – “desperately need additional support from government as their recovery is lagging other parts of Scotland’s economy”.
Mairi Spowage, director at the University of Strathclyde's Fraser of Allander Institute, said it would have been good to be optimistic about economic prospects for 2022. “Unfortunately, global uncertainties and the cost-of-living crisis... have doused that enthusiasm with a bucket of cold water.”
She also said the latest report nonetheless shows some optimism for 2022, and she added: “It will be interesting to see how this positivity evolves as we progress through 2022.”
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