David Bond – ICAEW director for Scotland

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q4 2025 found that confidence in the country had decreased for the sixth consecutive quarter to – 12.7, down from -0.5 in the previous quarter. It is the weakest confidence reading since Q4 2022 and below the UK average.

ICAEW said the findings reflected ongoing uncertainty surrounding both the UK and Scottish government Budgets, political developments ahead of the May elections, and a slowdown in Scottish economic activity.

Scottish firms identified the tax burden as the biggest growing challenge, cited by a record high of 68% of respondents, likely a result of pre-Budget speculation and recent tax increases, such as the rise in National Insurance contributions.

Regulatory requirements were cited as a challenge by 42% Scottish businesses while, conscious of upcoming Scottish elections in May, more than a fifth of respondents cited government support as challenge, more than twice the historic average.

At just 1%, Scotland experienced the weakest annual domestic sales growth in the UK during Q4 2025, likely a result of a slowdown in the nation’s manufacturing and engineering sectors enduring a decline in economic progression. While an improvement to Scotland’s annual domestic sales growth is projected over the next 12 months, it is one of the weakest forecasts in the UK, only ahead of Wales.

Scottish annual exports growth was also among the weakest in the UK, with businesses reporting no growth in Q4 2025. ICAEW said there was a strong likelihood that US tariffs had contributed to this downturn, especially for the nation’s whisky producers, which are heavily dependent upon their exports to the American market. In the coming year, the expected increase in annual exports growth to 1.8% is the lowest in the UK, likely linked to weak future exports predictions from the manufacturing and engineering sector.

David Bond, ICAEW director for Scotland, said: “It’s concerning that business confidence in Scotland has slipped to its lowest point in more than three years as the pressures of tax, political uncertainty and slowing economic activity take their toll.

“Scottish businesses are dealing with rising costs, weak sales growth and declining investment intentions, all of which are undermining their ability to plan and grow.

“In 2026, governments in both Edinburgh and Westminster must focus on creating the stable, supportive conditions that businesses need to unlock the potential among Scotland’s businesses.”

The survey found that business confidence in the UK sank into double-digit negative territory for the first time in three years, from -7.3 to -11.1 in Q4, amid unprecedented fears over the tax burden and weaker activity.