Survey captures snapshot of Scottish business concerns - Jason Higgs

The phrase “cost of living crisis” has become more common as inflation continues to increase – reaching a 31-year high in November – and prices of essential items steadily creep up.

Conversations around the crisis have mostly centred around the impact on the consumer. However, energy prices, inflation, and the tightening of household expenditure is inevitably beginning to impact businesses.

At PwC, our Deals practice supports several businesses in tackling market headwinds, and there is a clear pattern emerging regarding the most concerning issues for business in Scotland. Our “Act Now to Recover” survey captured a snapshot of current and future concerns from a collection of Scottish businesses with a combined annual turnover of more than £17.1 billion.

Unsurprisingly, energy costs were flagged by many, and we anticipate this will remain the case for an extended period. According to a recent FT article, the International Energy Agency stated we mustn’t be lulled into a false sense of security as prices are forecast to remain high well into next year – with a future pinch point to come.

Jason Higgs is Deals Partner, Scotland at PwC UK

The majority of businesses surveyed viewed rising energy costs as a significant challenge to business growth in the medium to long term. UK Government support measures, such as The Energy Bill Relief Scheme, are not a catch-all solution, but they are giving businesses time to plan, which is something we at PwC are also helping with.

Several businesses are also facing issues around the cost of debt, given that most regional businesses do not hedge their debt costs. Rising interest rates are being felt broadly by companies in Scotland with the three-year SONIA (Sterling Overnight Index Average) swap rate (the most commonly used hedging reference) standing at 4.1 per cent, compared with 0.8 per cent one year ago.

Businesses must also focus on employment and skills to ensure they can adequately face challenges – a strong management team will be essential to continue to weather the broader economic headwinds while in discrete areas of industry the labour market remains extremely tight.

Scotland has a higher proportion of people sitting within the economically active working age population and unemployment figures are currently low; yet we are aware of various businesses planning redundancies as the Bank of England suggests unemployment rates could shoot up to 5 or 6 per cent next year.

Our “Act Now to Recover” data suggests that reducing headcount is becoming a top priority for almost 80 per cent of businesses despite 46 per cent of companies seeing skills shortages as a medium-term challenge to business growth, with exactly half expressing longer term concerns.

Clearly individuals and businesses face hugely uncertain and challenging times. It is imperative that business leaders consider and model a wide range of scenarios in considering future trading. Planning for the future, including robust cash flow forecasting, quality of balance sheet and future capital needs should be the immediate priority. To ensure survival, recovery and future growth, acting now is the only option.

Jason Higgs is Deals Partner, Scotland at PwC UK. Find out more at www.pwc.com