ICAEW: Business confidence lowest in Scotland despite record sales boost
Scottish businesses were the least confident in the UK, although confidence remains in positive territory, according to a new survey by the Institute of Chartered Accountants in England and Wales (ICAEW)
Business sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Scotland, published today, found confidence at 12.4 on the quarterly index. While in positive territory, the confidence reading for Q2 was considerably down from its peak at the end of 2021.
ICAEW said that the decline in confidence was likely related to the growing challenges businesses face, particularly on the supply-side and with recruitment.
As costs pressures increase, annual input price inflation stood at its highest level in a decade, prompting Scottish businesses to shift these additional costs to customers. Selling prices, as a result, saw their largest increase for nearly 14 years.
Amid the increase in the cost of living, and last week’s announcement that inflation had hit 9%, ICAEW said targeted, strategic financial measures were needed to tackle these, to relieve households and stop issues spilling further into the economy.
The proportion of companies in Scotland reporting the availability of non-management skills and staff turnover as growing problems were significantly above the nation’s historical average.
For 39% of firms, the availability of management skills was a challenge too, higher than in any other part of the UK, possibly due in part to an exodus of staff during the pandemic.
Ongoing concerns over recruitment and skills mean businesses plan to increase their salaries by 3%, which would be the joint-highest rise since mid-2008.
Companies in Scotland recorded a 7.1% increase in domestic sales, the highest rise since the survey began in 2004, while the forecast for the next 12 months is also strong.
However, exports growth fared worse – and with the exception of North West England – was weaker than in any other part of the UK and still below pre-pandemic growth.
To cope with stronger demand and profits growth, Scottish firms have increased their capital investment rates by 3.7%, the fastest rate seen for eight years.
One in three companies cited government support as a growing problem, the highest rate yet, with the Scottish government’s stringency and longer duration of Covid restrictions, compared to England, a likely explanation.
David Bond, ICAEW director for Scotland, said: “Though confidence remains in positive territory, Scottish businesses would appear the least confident in the UK. But while our businesses will be buoyed by record domestic sales growth, they’re aware this growth could easily be derailed by challenges ahead like supply-side problems, skills and recruitment, as well as the economic threats posed by the cost-of-living crisis and soaring inflation.
“While none of these problems are of the governments’ making, they must understand the emotional and financial toll on people and families. The Chancellor should address the high cost of living with targeted, strategic financial measures to prevent disastrous consequences for people’s standard of living and the amount of spending in the economy, which could result in real pressure on businesses.”
The survey also revealed that in the UK as a whole, business confidence fell for a third quarter in a row, amid concerns on the tightening of the economy and rising inflation. Confidence for the quarter was at 18.6 on the index, down from its peak of 47 three quarters ago. Cost pressures and staff shortages were hampering expectations of a more positive outlook.