Scottish firms least confident in UK but profits still forecast to rise

Scottish businesses are the least confident in the UK and export growth lags behind other nations, a survey today suggests.

The latest Business Confidence Monitor from accountancy body ICAEW found that sentiment in Scotland now stands at just 16.3, down from 42.2 in the previous quarter. Despite that, firms still expect profits to rise.

Experts said the decline in confidence was likely related to an only modest increase in domestic sales, which at 4.6 per cent was lower than the UK average. Export growth also lagged behind the UK average, with post-Brexit trading frictions a probable factor.

Confidence is also likely to have been hampered by increasing costs, with input price inflation at 2.8 per cent year-on-year, a higher rate than the Scottish historical average of 2.2 per cent.

Scottish businesses are the least confident in the UK, according to the latest Business Confidence Monitor from accountancy body ICAEW. Picture: Jeff J Mitchell/Getty Images

Businesses said they expected to pass higher costs on to consumers, with selling prices set to rise by 2.5 per cent in the next year, putting a further squeeze on the cost of living. This should help offset any impact on company profits, however, which are set to grow by 5.1 per cent.

Almost half of Scottish businesses said that both the availability of non-management skills and staff turnover were growing challenges they faced, the highest proportion for each since the survey began in 2004.

The findings revealed that a third of companies were concerned about competition in the marketplace, while regulatory requirements continued to be a widespread issue, possibly related to Covid pandemic restrictions and post-Brexit trading requirements.

Scottish firms saw average total salaries nudge up 1.7 per cent year-on-year, with a further 2.6 per cent rise forecast, which would be the joint sharpest increase in eight years. Employee numbers have already increased by 1.4 per cent and are set to rise by 3.1 per cent in the year ahead, according to the latest quarterly monitor.

Looking to the year ahead, Scottish businesses expect sales to grow at a smaller rate than across the UK. They forecast domestic sales to rise by 5.5 per cent in the coming year, with exports set for a 3.7 per cent boost.

David Bond, ICAEW director for Scotland, said: “After a peak in confidence at the end of last year, Scottish businesses are now the least optimistic of any part of the UK.

“Businesses tell us they are concerned with staffing problems and increased costs, while sales growth was lower than the UK average. Nevertheless, domestic sales and exports are set to increase over the next year, alongside profits.

“As companies look to the future, the UK government’s plans for levelling up could help boost Britain’s post-pandemic economic recovery,” he added. “We hope the private sector will be able to engage with both Holyrood and Westminster to play a key role in achieving growth.”

The ICAEW, which was founded in 1880, said chartered accountants in Scotland responded to a telephone survey between October 18 and January 14 as part of the survey. Businesses were categorised in terms of size (number of employees), region and industry sector.

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