Scots firms fear 'triple threat' of low investment, high costs, and rising interest rates

Almost half of Scottish firms believe the Bank of England should resist nudging up interest rates further as they continue to battle challenging economic conditions, according to a report published today.
David Anderson, partner and head of corporate at Addleshaw Goddard in Scotland, says it is 'more important than ever' to regularly monitor Scottish business. Picture: contributed.David Anderson, partner and head of corporate at Addleshaw Goddard in Scotland, says it is 'more important than ever' to regularly monitor Scottish business. Picture: contributed.
David Anderson, partner and head of corporate at Addleshaw Goddard in Scotland, says it is 'more important than ever' to regularly monitor Scottish business. Picture: contributed.

The latest Addleshaw Goddard Scottish Business Monitor (SBM) notes that the findings come as business sentiment drops slightly from a relative high in the spring report, with most businesses experiencing a contraction in sales, turnover, investment, and export activity in the second quarter, with only employment figures increasing from the prior three-month period. The new findings come hot on the heels of the news that the annual rate of consumer price inflation cooled to 6.8 per cent in July, from 7.9 per cent in June, prompting the expectation of at least another quarter-point hike in interest rates.

Hide Ad
Hide Ad

The SBM, produced in partnership with the University of Strathclyde's Fraser of Allander Institute, surveyed 400 businesses in July and August. It says that one of its starkest findings is that around 40 per cent of respondents reported cancelling or delaying investments – primarily physical assets – over the past year, with the most common cited stumbling blocks economic uncertainty, affordability, and the cost of borrowing.

The authors of the latest document also note that it follows the report on 25 years of the SBM, published in March this year, which found that low levels of investment have been a “longstanding feature of the Scottish economy for many years”. Additionally, the new data showed that 83 per cent of firms in Scotland have seen their bills increase, and half of surveyed businesses are either unable to absorb costs for any longer or are unsure how much longer they can do so.

However, companies expect cost pressures overall to lessen in the second half of 2023, with the exception of wages, while labour supply issues persist, and 84 per cent of firms with vacancies finding it difficult or very difficult to fill them, slightly higher than last quarter.

Looking ahead, the share of firms expecting weak or very weak growth in the Scottish economy has increased to 71 per cent from 62 per cent, despite business sentiment remaining positive overall, and most companies expect economic/ business uncertainty (83 per cent), staff availability (77 per cent), and political uncertainty (69 per cent) to be key over the next quarter.

David Anderson, partner and head of corporate at Addleshaw Goddard in Scotland, said it is “more important than ever” to regularly take the pulse of the Scottish business community. He added: "My colleagues and I work with businesses across all sectors, and the latest findings chime with what we are hearing on the ground, both in terms of the challenges and some positive signs such as inflationary pressures easing and supply chain issues improving. It is clear there is still some way to go before we can return to sustained growth – and the policymakers have a big role to play in the coming months."

Professor Mairi Spowage, director of the Fraser of Allander Institute, said growth over the next few years “is forecast to be fairly muted”, adding: “Although inflationary pressures, particularly energy costs, continue to ease, a significant share of firms are putting off investments... This is particularly concerning when we look forward to the recovery and longer-term prosperity of the Scottish economy.”

Comments

 0 comments

Want to join the conversation? Please or to comment on this article.