Scottish business confidence above European average despite inflation headache

Scottish business confidence is outpacing the European average but inflation expectations remain high as firms tackle stubborn wage pressures, a survey today reveals.

Confidence among Scottish companies that activity will continue to grow over the coming year is higher than the European average, according to the latest Accenture/S&P Global UK business outlook. Plans to increase investment, including in research and development (R&D) and areas such as artificial intelligence (AI), helped to offset concerns surrounding high inflation and staffing costs. The report comes just days after the Scottish Chambers of Commerce’s latest quarterly economic indicator suggested that business investment had flatlined in recent months, while growth was positive but “significantly subdued”.

Accenture’s study shows that the net balance of firms expecting activity to increase over the coming year stands at +22 per cent, falling from +35 per cent in February this year. This is lower than the UK average (at +40 per cent), but Scottish businesses remain more confident than their mainland European counterparts, where optimism is at +19 per cent.

The latest results reveal that inflation expectations from Scottish companies remain high (+53 per cent) but these have eased from earlier in the year (+61 per cent) and continue to decrease from the peak of +69 per cent in June 2022. This is especially true of staffing costs, where a net balance of +38 per cent of businesses predict wages to rise over the next 12 months, down from +44 per cent in February. Meanwhile, the number of firms in Scotland expecting a net gain in profits stands at +20 per cent, five percentage points higher than in the rest of the UK.

Artificial intelligence was the fourth most popular area of technological investment in June, rising from seventh place last year. Service sector firms were said to be particularly keen to add AI capabilities over the coming year, linking this, somewhat ominously, to a need to “streamline costs amid sticky wage inflation”. A greater percentage of companies hope to improve their capabilities around cloud technology, cybersecurity and data analytics.

David Caskie, joint managing director for Accenture in Scotland, said: “While it is understandable that Scottish businesses remain cautious in their general outlook during the current climate, there are still plenty of encouraging signs showing their resilience. Inflation and staffing costs remain a concern, but confidence to invest in research and development is bouncing back, particularly when it comes to technology and AI. We reported in April that Edinburgh’s status as a European capital for the data and AI sectors is on the rise, and these recent figures around R&D and AI indicate that we’re on a continued path to achieving this.”

The Accenture/S&P Global UK business outlook is based on a panel of about 1,400 companies in the manufacturing, services and construction sectors. Last week’s Scottish Chambers report showed that labour costs are now the biggest cost pressure and driver of price rises, cited by three-quarters of all firms surveyed. Interest rates are the second largest concern behind inflation, impacting 40 per cent of all businesses, according to the latest findings.

Scotland's flatlining business investment a 'wake-up call' to government - Scottish Chambers of Commerce