Releasing its latest business confidence monitor, chartered accountancy body ICAEW found that as well as challenges from the pandemic, Scottish firms were struggling amid the uncertainty of the UK’s future trading relationship with the EU.
Half of businesses said customer demand was a growing challenge, while a third said competition in the marketplace was an increasing issue.
Companies reported a decline in profits in the year to date, but it is likely that this would have been deeper without a fall in labour costs, the report noted. Scottish businesses reduced wages at a sharper rate than any other part of the UK.
A higher proportion of companies cited late payments as a more pressing issue than a year ago.
Businesses responding to the survey said they did expect some sales improvements over the coming year, but the tiered lockdown restrictions in place across Scotland would impact any recovery.
David Bond, ICAEW regional director for Scotland, said: “It is little surprise that the coronavirus crisis has had an impact on Scottish businesses, who have told us they have seen sales and profits decline.
“Businesses hope for a better year ahead, but any new lockdown measures could clearly have an impact on a recovery.
“A lack of clarity over UK-EU trade talks has added to concerns for Scottish businesses. We hope the government will make every effort to reach a fair deal for the UK, which will be vital for the UK’s post-pandemic economic recovery.”
Meanwhile, business activity for small firms in Scotland has contracted for the first time since June, according to the latest Royal Bank of Scotland UK Small Business PMI (Purchasing Managers’ Index). This contrasted with a steady recovery during the third quarter of 2020 and was led by shrinking service sector output.
Stephen Blackman, Royal Bank of Scotland principal economist, said: “The short-lived recovery in UK small business output came to a halt in October with the PMI dipping back into contraction territory, ending a three-month streak of positive readings as the introduction of local lockdowns and further restrictions took its toll on activity.
“Business confidence looks set to remain in the doldrums, keeping companies in a cautious mode amid continued weak demand and nervousness around Brexit.
“Latest reports of a vaccine being rolled out in early 2021, if not earlier, points to light at the end of the tunnel for the UK’s struggling SMEs [small and medium-sized enterprises], but it’s still early days.”
Consumer-facing service providers widely linked lower output to tighter restrictions on social mobility and hospitality amid a resurgence in the number of positive Covid tests.
Small manufacturing companies experienced a renewed drop in output during October, which contrasted with growth across the sector as a whole, the report noted.
Falling production was mostly attributed to weak customer demand due to the pandemic, although in some instances manufacturers simply cited an end to working through backlogs from the spring.