Scottish business confidence sees 'encouraging' rebound amid sharp increase in forecasts for activity

Scottish business confidence enjoyed an “encouraging” rebound in February to its highest level in more than a year, as expectations regarding activity picked up sharply from a record low in October, according to a report out today.

The latest Accenture/S&P Global UK Business Outlook has found that the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was, at +35 per cent, the strongest recorded in more than a year and marked a major uptick from the +14 per cent registered in October 2022.

The report found that Scottish companies were more confident than almost all of their European peers, with levels of optimism in the eurozone at +23 per cent, but remained lower than the UK average of +43 per cent.

The boost in business confidence among firms north of the Border was reflected in a more positive profit expectation, which over the past year has risen from -4 per cent in June to +21 per cent in February. However, while fewer businesses expected both supply costs and output prices to rise, these are still a “significant” concern, the study also showed.

At +35 per cent, the net balance of manufacturing and service sector firms expecting activity to increase over the next 12 months was the strongest recorded in over a year, the report found. Picture: Robert Perry/Getty Images.

Non-staff cost inflation is expected to dip slightly (net balance at +61 per cent from +63 per cent in October), and the net balance of firms expecting a rise in output prices was +32 per cent, down from +47 per cent this time last year and +40 per cent in October. Salary pressures, however, hit a net balance of +44 per cent, the highest recorded figure since comparable data began in February of last year, Accenture/S&P Global also said.

On a less positive note, the number of firms predicting a rise in employment was deemed “less encouraging”. A net balance of +9 per cent of Scottish businesses expect to see an increase in their hiring activity, “well below” the UK average, which has more than doubled since October to +26 per cent. Firms suggested that the availability of labour poses an issue, “which may account for a less optimistic outlook in Scotland”.

Concerns

Turning to predictions for capital expenditure and research and development, plans are flat, but both metrics have improved from negative figures in October, although there are concerns that tight budgets could still threaten opportunities for growth.

Commenting on the findings, Stuart Chalmers, joint MD for Accenture in Scotland, said: "It is encouraging that Scottish businesses are beginning to feel more confident after what has been a hugely challenging time. The research shows that rising wholesale costs and the knock-on effect of the price of goods and services remain significant concerns, but this optimism shows the resilience of Scottish businesses.

"While firms are understandably still cautious, it is also important to capitalise on this increased confidence and look to both the medium and long term with the skills of their people and their business investments. Empowering colleagues with new technology and upskilling existing workers will drive innovation and create the foundations for future growth."

The report comes after the Office for National Statistics on Friday said the UK economy grew by 0.3 per cent in January, following a sharp 0.5 per cent decline in December.