ICAEW: Scottish businesses balance confidence dip with strong growth prospects
Business confidence in Scotland has dropped below both the UK average and the historical norm for the country, but remains in positive territory, according to a new survey of chartered accountants.
Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q4 2023 put confidence at 2.0, down from 6.4 in the previous quarter. The latest results suggest that Scottish firms were less confident about their prospects than the UK average, ICAEW said. The level of confidence was consistent with the broader performance of the Scottish economy, including the impact of wet weather on GDP, and ongoing financial challenges.
However, while domestic sales growth slowed nationally, the picture in Scotland was much healthier and likely to have supported sentiment, with an annual rate of 5% reported in Q4 2023, compared to a UK rate of 3.6%. The higher rate is expected to continue over the coming year. Export sales were also up on the year before and are set to grow at a faster pace than anywhere in the UK, the BCM found.
As a result of rising selling prices and strong domestic sales, Scottish businesses achieved profits growth of 3.3%, outstripping the UK average. This trend is set to continue, with profits growth expected to reach 5.3% in Scotland over the next 12 months, higher than the UK prediction of 4.6%.
However, Scottish companies reported a number of growing challenges. The majority of businesses are struggling with regulatory requirements and two-fifths said they had difficulties with marketplace competition, both the highest rates in the UK. Additionally, almost one third of respondents reported the availability of non-management skills as a challenge.
Around a quarter of Scottish businesses reported struggling with customer demand, although concerns have eased in Q4 and the issue is more prevalent elsewhere in the UK.
The survey also found that input price inflation may have peaked in Scotland and was down from its record high in the previous quarter. Cost pressures are set to reduce in the coming year, and to a slower rate than the UK average.
Nevertheless, Scottish firms said they expected salary and employment growth in the year ahead to be among the highest in the UK.
Reflecting an optimistic outlook, capital investment spending in the year to Q4 2023 was among the highest in the UK, and is set to grow faster than anywhere else over the coming year. Scottish companies continue to raise their research and development budgets, and though it is expected to moderate in the coming year, the projected rate of increase keeps Scotland among the top performers in the UK.
In its submission to the Treasury ahead of the Budget, ICAEW said the UK government should build an economy underpinned by certainty, clarity, stability, and introduce the right long-term incentives to influence investment, employment and growth.
David Bond, ICAEW director, Scotland, said: “With economic concerns continuing to weigh on Scottish businesses, the Business Confidence Monitor presents a mixed picture, with sentiment down although still positive, and strong sales and profits growth which is set to continue.
“Nevertheless, Scottish companies say they face a range of challenges, with the majority of our firms devoting too much time and energy to regulatory requirements.”
Nationally, business confidence rose marginally, but at 4.2 on the index, remained below pre-pandemic levels as customer demand issues and weakening sales growth took their toll on sentiment.