Cashflow and profits are falling, investment decisions have paused, and firms are raising prices while struggling to recruit and retain staff, states the latest study from the Scottish Chambers of Commerce (SCC), which is billed as the longest-running economic survey of its kind north of the Border, and this time round polled 310 firms, 94 per cent of whom have fewer than 250 staff.
The report followed inflation having just been revealed to have come in at 10.5 per cent in December, marking a slight drop, but remaining close to a 40-year high nonetheless. The SCC has found that concern over inflation eased for a second successive quarter, but remained high with eight in ten firms citing it over the last three months of 2022. The next highest concern was interest rates at 50 per cent, which now sit at 3.5 per cent.
The SCC also found that 82 per cent of all firms said they intended to raise prices over the next quarter, a successive record high for the survey, and the retail and tourism sectors had the highest proportion indicating future price rises at 77 per cent and 76 per cent of firms respectively.
Additionally, labour costs have now taken precedence as the leading cost pressure, cited by nearly three quarters of respondents, while concern over fuel costs and raw material prices remains high, both being cited by six in ten firms. On balance, all firms have reported a fall in confidence compared to the previous quarter and a more significant fall compared to last year, and every sector reported a fall in quarter, with retail and tourism seeing the largest fall from the previous quarter.
The SCC quoted an unnamed retail firm in Renfrewshire stating: “Business pressures are severe right now. We are suffering with recruitment and retention. With no staff we have no business, despite the measures we are putting in place to aid retention.”
SCC president Stephen Leckie – whose other roles include leading Crieff Hydro Family of Hotels – said the end of 2022 “turned out to be a bleak period for Scottish businesses”. He added: “There can be little doubt that recessionary effects are dragging the Scottish economy away from recovery and growth. As relief packages come to an end, businesses are extremely concerned particularly on energy prices, which continue to be volatile. We call on the UK and Scottish Government to urgently support SMEs by providing relief packages and a clear economic plan.”
Also commenting on the latest survey findings was Professor Mairi Spowage, director at the University of Strathclyde's Fraser of Allander Institute, who said concerns about economic conditions “simply seemingly get worse as we kick off 2023”.
She also stated: "The consensus now is that the UK and Scottish economy are in recession, and the only debate among forecasters is exactly when it starts and how many quarters long it will be. We must be positive about the ability of Scottish businesses to weather the storm – they have proven their resilience over the past three, very challenging, years. What is clear is that they will have to draw on that further during 2023.”