Scottish business confidence falls below UK average and historical norm amid ‘ongoing challenges’

Some optimistic signs as Scottish firms continue to raise their research and development budgets.

Business confidence levels in Scotland have slipped below both the UK average and the historical norm for the country as firms devote “too much time and energy to regulatory requirements”, a survey today suggests.

Sentiment tracked by accountancy body ICAEW’s Business Confidence Monitor - one of the most comprehensive surveys of UK business activity - put confidence at +2, within positive territory but down from 6.4 in the previous quarter. The latest result, for the closing quarter of 2023, suggests that Scottish firms were less confident about their prospects than the UK average.

According to the report, the level of confidence was consistent with the broader performance of the Scottish economy, including the impact of wet weather on GDP, and “ongoing financial challenges”.

David Bond, ICAEW director, Scotland.

UK-wide, business confidence rose marginally, but at 4.2 on the index remained below pre-pandemic levels as customer demand issues and weakening sales growth took their toll on sentiment.

David Bond, ICAEW director, Scotland, said: “With economic concerns continuing to weigh on Scottish businesses, the Business Confidence Monitor presents a mixed picture, with sentiment down although still positive, and strong sales and profits growth which is set to continue. Nevertheless, Scottish companies say they face a range of challenges, with the majority of our firms devoting too much time and energy to regulatory requirements.”

The Business Confidence Monitor has been running for 20 years now. Chartered accountants based in Scotland responded to a telephone survey between October 17 and December 15 for the latest snapshot.

While domestic sales growth slowed nationally, the picture in Scotland was much healthier and likely to have supported sentiment, with an annual rate of 5 per cent reported in the fourth quarter, compared to a UK rate of 3.6 per cent. The higher rate is expected to continue over the coming year, ICAEW noted. Export sales were also up on the year before and are set to grow at a faster pace than anywhere in the UK.

However, Scottish companies reported a number of growing challenges. The majority of businesses are struggling with regulatory requirements and two-fifths said they had difficulties with marketplace competition, both the highest rates in the UK. Additionally, almost one third of respondents reported the availability of “non-management skills” as a challenge.

Around a quarter of Scottish businesses reported struggling with customer demand, although concerns eased in the closing months of 2023 and the issue is more prevalent elsewhere in the UK. The survey also found that input price inflation may have peaked in Scotland and was down from its record high in the previous quarter. Cost pressures are set to reduce in the coming year, and to a slower rate than the UK average, according to the report.

Reflecting a generally optimistic outlook, capital investment spending in the year to Q4 was among the highest in the UK, and is set to grow faster than anywhere else over the coming year. Scottish companies continue to raise their research and development budgets, and although it is expected to moderate in the coming year, the projected rate of increase keeps Scotland among the top performers in the UK.

Scottish business confidence slips but 2024 offers reasons to be cheerful as more firms look to hire