ICAEW data shows slight drop in Scottish business confidence

CONFIDENCE among Scottish businesses has slightly decreased but still remains high and is generally in line with the UK average.

The Institute of Chartered Accountants in England and Wales’s survey for the third quarter of the year showed confidence at 14.2 on the index, a drop from 15.4 in the previous quarter but still well above its average.

Scottish companies reported an increase in domestic sales for the first time in 18 months during the third quarter, surpassing their historical average but falling short of the UK average. While businesses anticipate further expansion over the next year, predictions indicate this growth would be one of the slowest in the UK.

However, the expected increase in domestic sales within the energy and water sector is expected to boost growth, given the high number of these businesses in Scotland, though the country is underrepresented in other sectors that are seeing a rise in sales.

Regulatory challenges continue to be the most common issue faced by Scottish businesses, though the percentage of those reporting these challenges has decreased from a record high of 62% in the previous quarter to 34%.

Exports have seen a decline compared to the previous year, with a challenging outlook for manufacturing and engineering, as well as energy and water companies, likely affecting expectations.

Scottish firms expect the slowest growth in exports over the next year.

Scottish businesses have reported the highest increase in input price inflation in the UK, though there is an expectation of a significant decrease over the next year, with only Yorkshire and the Humber expecting lower inflation. The combination of high input price inflation and weak exports has limited profit growth.

Profit expansion from the previous year was notably lower than the historical average at 2.6%, and while there is an expected increase in profit growth in Scotland, it is still below the UK average.

Meanwhile, the number of companies expressing concerns about infrastructure issues is higher in Scotland than the rest of the UK, with a double of the historical average of businesses reporting these issues. This increased concern could be linked to evidence from Ofcom showing that 33% of commercial premises in Scotland have full-fibre broadband, compared to the UK average of 40%.

David Bond, ICAEW’s director for Scotland, said:

“Stubbornly-high input price inflation and weaker exports have had an impact on sentiment, though it is notable that the number of firms troubled by regulatory requirements has fallen significantly.

“As speculation in Westminster continues ahead of what is likely to be a difficult Budget, we are calling on the Chancellor to provide the certainty and stability that companies need.

“Reforms to VAT, alongside public and private investment – could help to achieve this.”

Scottish businesses have raised their selling prices at a faster rate than any other region in the UK, but it is expected that there will be more modest price increases in the coming year. In terms of the labour market, Scotland only saw a slight increase in employment growth to 1.7% in the third quarter, slightly above the country’s average of 1.2%. Salaries increased at the same rate as the previous quarter and slightly exceeded the national average, though businesses anticipate a slowdown in employment growth.