Many Scottish SMEs still report no improvement in sales, cashflow, and investment despite increased confidence.

The survey found that inflation concerns remain high, with 82% of firms reporting increased concern. Cost pressures are also still prevalent, with 75% of firms experiencing increased pressure from energy costs, 70% from labor costs, 55% from fuel costs, and 50% from raw material prices.

Regarding cashflow and profit challenges, 43% of firms reported a fall in cashflow compared to a 31% increase. The manufacturing sector was the only one to report cashflow growth, while the services sector saw growth in profits. The number of firms planning to raise prices in the next quarter has fallen slightly, with 73% stating their intention to do so.

The labor market remains cautious, with recruitment difficulties dropping from 52% in Q4 to 47% in the current quarter. More than half of all firms reported no staff changes and do not expect changes in Q2 2023.

Stephen Leckie, president of the Scottish Chambers of Commerce, highlighted the improvement in some sectors, but acknowledged the ongoing challenges faced by retail and tourism industries. He emphasised the need for agile and decisive government action to support firms through uncertainty and address issues such as energy bills, inflation, and labor shortages.

Mr Leckie also called for reduced business regulation and an immediate review of the business rates system, as well as urging the UK government to reconsider its support for firms and households facing increased energy costs.

Regarding inflation and price rises, Mr Leckie noted the high concern among firms and the potential impact on businesses’ decisions and bottom line. He urged monetary policymakers to consider the balance between increasing interest rates and stimulating consumer demand and investment.

On the labor market, Leckie highlighted the need for government action to help people return to work post-pandemic and address workforce shortages.

Professor Mairi Spowage, director at the University of Strathclyde’s Fraser of Allander Institute, said: “The outlook for the UK economy published by the Office for Budget Responsibility (OBR) which accompanied the Spring Budget was significantly more positive than in November.

“Given the uncertainty, and in particular, given the rise in energy bills households and businesses will experience from April, it feels a little premature to be celebrating that the UK has dodged a recession.

“Whilst it may indeed be true that a technical recession will be avoided, it is still going to feel like a difficult time for the economy – with even the optimistic OBR thinking there will be a contraction in growth over 2023.

Prof Spowage continued: “So, the overall feeling in the economy seems to be that things are not as bad as we feared a few months ago, but that the bar was pretty low. All of this is shown in the survey results today, with firms a bit more positive about the outlook for business, but much more negative about investment intentions.

“This is concerning for the medium to long-term capacity of our economy to grow. The increasing uncertainty in the economy at the moment is unlikely to provide the environment to incentivise the investment that the economy needs.”