Grant Thornton: Scottish business profit and investment expectations plummet amid low optimism

Grant Thornton: Scottish business profit and investment expectations plummet amid low optimism

Stuart Preston

The latest Business Outlook Tracker by Grant Thornton has shown a significant decline in mid-market business sentiment in Scotland, with a notable impact on profit expectations and investment.

The December survey highlights that one-third (32%) of businesses anticipate a decrease in profits over the next six months, marking a 20 percentage point drop since October to 46%, which is 9pp below the rolling average.

There’s also a stark decline in business optimism, with economic growth expectations remaining flat since October at 58%, 11pp below the average. Revenue growth expectations have similarly decreased to 58%, 12pp below the average, and pessimism about revenue growth has reached its highest level in three years at 18%. Additionally, pessimism about funding positions has hit a record high of 17%.

Investment expectations continue to slow down with all expectations down or the same as in October. Technology (-8pp), recruitment (-6pp) and skills development (-5pp) / growing in international markets (-5pp) saw the biggest declines since the last round in October.

Stuart Preston, partner for Grant Thornton UK LLP in Scotland, said: “Throughout most of 2023, businesses have remained relatively optimistic about the economy and their ability to weather the many challenges.

“This latest set of business outlook data suggests that businesses are now starting to come face to face with hard realities resulting from a combination of poor economic performance, biting covenants, higher interest rates, relatively high levels of inflation, energy cost increases, political uncertainty, and decreased investment expectations.”

He continued: “The only way to get the economy onto a high growth, low inflation path which leads to economic prosperity and welfare gains is to invest in areas that improve productivity, close the productivity gap, and enhance skills.

“Currently there are decreased investment expectations across the board, including in these key areas. The government has put some measures in place such as apprenticeship levy, green grants, R&D tax credits – and while businesses should take advantage of these, they currently don’t seem to be sufficient to ward off all the pressures faced.

“Businesses will know that investing in these areas is critical to their long-term competitive success – so the fact that they are cutting back in these areas paints a clear picture of the pressure they are under.”

He concluded: “With all of this in mind, it is understandable that optimism is at an all-time low, as businesses are in the thick of the storm and trying to get through. However, over half (58%) of respondents remain optimistic about the economic outlook, suggesting that businesses can still see light at the end of the tunnel.

“The economy is predicted to improve from 2026 onwards, by which point government policies such as childcare and pension reform will hopefully have kicked in and started loosening the labour market.”

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