Business future is not all gloom - Jamie Grant
As thermometers hit new records across the country it’s time to take a temperature check of Scottish business.
At the start of the year, many business leaders seemed optimistic and balance sheets were generally stronger, but there is no doubt there’s been something of a mood swing over the past months with the rising cost of living and ongoing supply chain problems denting the post Covid optimism. However, with the confidence and buoyancy of Scottish businesses still apparent, now is the time to take stock and prepare for the new challenges ahead.
Rising costs, a shortage of skilled workers and supply chain bottlenecks caused by continuing Covid restrictions in China, are leading to congestion at ports and delayed deliveries, forcing up the cost of materials as businesses try to source them from elsewhere.
The agriculture, manufacturing and healthcare sectors all face recruitment problems including the challenge of persuading staff to return to industries that they had to abandon during the pandemic.
Supermarkets have so far absorbed some of the cost increases but it’s unclear how long they can continue to do so. If rising costs are eventually passed on to consumers who are already hard hit by soaring energy costs, then spending will eventually slow, and businesses may have to rethink their strategies. Some sectors operating on relatively low margins, such as retail, remain more challenged than others.
These factors, amongst others, are giving business leaders reason to pause for thought, but it’s not all doom and gloom. Some businesses have been able to pass costs down the value chain, while others have turned to automation and other efficiencies to protect margins.
The good news is that many companies are still in a strong liquidity position, and some of that is being used to acquire other businesses to improve their operating position. At the same time, business leaders learned some valuable lessons during the pandemic and are recognising the opportunities the current climate can offer. They are looking to new markets and new products to diversify revenue streams.
Scotland’s hospitality and leisure industry is really bouncing back, and tourists will further boost the economy by flocking to summer events like the recent 150th Open Championships, the Royal Edinburgh Military Tattoo and the Edinburgh Festival Fringe.
The Scottish food and drink sector also continues to perform well with exports generally holding up.
All in in all, I'm still optimistic that Scottish business is in robust shape, with good liquidity and management teams who have learned valuable lessons in the pandemic that will stand them in good stead going forward.
There are undoubtedly challenges ahead for consumer-led businesses – and we all need to watch out for any significant slowdown in consumer spending as an early warning sign of darker economic clouds on the horizon.
It’s a time to take stock and to carefully consider the right path forward, whether that’s divestment of parts of the business that aren’t performing, or taking opportunities to grow new markets, all while keeping a close eye on the balance sheet and protecting margins. Here at Barclays, we are committed to playing our part as a trusted banking partner to support our clients’ changing strategies.
Jamie Grant, Head of Corporate Banking Scotland at Barclays
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