Sentiment among Scots firms in negative territory for first time in two years

Sentiment among Scottish companies has entered negative territory for the first time since the end of 2020, but such firms are acting to safeguard themselves as well as asking for further government support measures, according to new survey data.

The latest Addleshaw Goddard Scottish Business Monitor report, an influential study produced in partnership with the University of Strathclyde's Fraser of Allander Institute, surveyed 450 firms in October from across the economy and showed that energy bills and staff pay are expected to be biggest cost drivers over the next two quarters. Additionally, 70 per cent expect growth in the Scottish economy to be weak or very weak over the coming year.

When asked what they would like to see in the UK Government’s upcoming medium-term fiscal plan and/or the Scottish Government’s upcoming budget, more than a quarter mentioned VAT and/or corporation tax cuts, while other support and help was mentioned by 22 per cent.

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The report revealed that just under half of Scottish firms surveyed expected to reduce their operations this year due to higher energy bills, up from 40 per cent last quarter. However, 60 per cent are increasing their focus on adopting energy-efficient processes. Those behind the report said businesses are clearly looking for both Holyrood and Westminster to “strike the balance between offering the right package of support for businesses and also retaining credibility to secure stability”.

'The results of the latest survey are no surprise,' says Alan Shanks, partner in the energy and utilities team at Addleshaw Goddard. Picture: Renzo Mazzolini Photography.

Alan Shanks, partner in the energy and utilities team at law firm Addleshaw Goddard, said the latest survey results are “no surprise” given the economic backdrop. He added: "The businesses responding to our survey have made it clear what governments can do to help them chart a course through another difficult period. They have also made it clear that they will take control of what is in their own hands, and it is positive to see an increase in the number of businesses looking to tackle their own energy costs by, among other things, looking at efficiencies.

"There are important conversations to be had with businesses and those holding the economic levers, but also within businesses themselves to ensure they are doing everything in their power to manage risks and successfully trade through these challenges."

In terms of overall business costs, 90 per cent of firms in Scotland surveyed have experienced a jump over the past year, and in the hospitality sector, 10 per cent have seen their expenses more than double in a year. Additionally, 85 per cent of responding businesses said they expect their prices to increase more than normal, or a lot more than normal, in the next year. The report also uncovered further negative net balances for expected capital investment and export activity, although the share of Scottish firms experiencing issues related to their supply chains continues to fall.

Professor Mairi Spowage, director of the Fraser of Allander Institute, said: "With the price of goods, energy, and borrowing on the rise, the majority of Scottish firms that we surveyed are expecting to [reduce] their operations or pass on costs to their consumers over the next year. However, there is some good news from our latest survey. Supply-chain issues continue to ease, which may dampen inflationary pressures, and the ongoing energy crisis has motivated Scottish businesses to consider making energy-efficient improvements to their processes."



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