Scots firms see sentiment improve - but face ‘long road ahead’

Sentiment among the Scottish business community is showing “tentative” signs of improvement as lockdown restrictions ease – but the overall outlook remains “challenging”, according to a major survey of Scottish companies published today.

Business activity is expected to rise from a record low, the survey found. Picture: Jon Savage.
Business activity is expected to rise from a record low, the survey found. Picture: Jon Savage.

The Addleshaw Goddard Scottish Business Monitor, produced with the Fraser of Allander Institute, surveyed more than 500 firms between 30 June and 14 July. The monitor was launched in 1998 and the latest indicates that while day-to-day business activity remains substantially below normal levels, the volume overall anticipated for the next six months is expected to recover “significantly”.

Overall, business sentiment around operational capacity, day-to-day activity, employment and debt levels, is expected to depend largely on how the virus is contained over the coming months and how Scottish policy reacts. When compared with normal levels for the next six months, the average firm expects to operate at 51 to 75 per cent capacity, but one in every four firms says it will operate at normal or above-normal capacity.

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David Kirchin, head of Scotland at Addleshaw Goddard. Picture: Renzo Mazzolini Photography.
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Business activity is expected to rise from a record low, with a net balance of 70 per cent of firms reporting a decrease in the first quarter of 2020 to 4 per cent as we look ahead to the next six months.

Looking at employment and capital investment, whilst expectation indicators remain negative, there has been some recovery. Expectations for employment over the next six months have increased from –57 per cent to –21 per cent, with capital investment recording an increase from –68 per cent to –21 per cent.

Turning to the Job Retention Scheme, the majority of firms say they plan to make redundancies once the furlough support ends. Additionally, many have ramped up their debt to get through lockdown, with nearly half saying their burden has increased as a result.

Clearer picture

Graeme Roy, director of the Fraser of Allander Institute, said the economic costs of the lockdown are becoming “ever clearer”. He added: “This summer’s activity figures were the lowest since the survey began in 1998.

"And whilst we find a marked improvement in business sentiment for the next six months, the finds are highly polarised, with just as many firms expecting a further fall in activity as those expecting an increase.” He added: “Whilst the economic recovery has clearly started, it will be a long road ahead.”

David Kirchin, head of Scotland at Addleshaw Goddard, said that while activity levels are now improving, they remain “challenged”. But he added: “Our recent experience tells us that potential investors have a healthy appetite to seek out opportunities with innovative businesses, as companies have been able to obtain new equity capital in these last few months, whether by a private raise or by turning to the public markets.”

The report follows Bank of Scotland finding Scottish business confidence to be the weakest in the UK.

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