Business confidence in Scotland has jumped to its highest level in more than two years, with export growth accelerating and cost pressures easing, according to the latest Business Confidence Monitor from the Institute of Chartered Accountants in England and Wales (ICAEW).
The confidence index for the first quarter of this year stands at 15.4, a significant increase from the previous quarter and well above the historical average for Scotland. It’s the highest level of business confidence in Scotland since early 2021.
The surge in confidence seems to be driven by robust export growth, which soared by 4.4% in the first few months of this year—one of the highest rates across UK regions and nations. However, despite this rapid start, export growth in Scotland is expected to trail the UK average in the coming year.
The easing of cost pressures also contributed to the boost in business confidence. Input price inflation in Scotland saw the slowest increase in the UK, and further moderation is anticipated in the year ahead. Additionally, the rise in selling prices was slower than the UK average, with an increase of just 3% over the year leading to the first quarter of 2024.
While Scotland’s profit growth stood at 4%, outpacing the UK average of 2.6%, the outlook for the next year is less promising. Scotland is projected to have the weakest annual profit growth in the UK.
Scottish businesses identified regulatory requirements and tax burdens as their primary challenges, with 48% and 33% of firms reporting these concerns, respectively. The ICAEW noted that changes to income tax in Scotland could impact businesses that rely heavily on consumer spending.
Though domestic sales growth dipped slightly in the quarter, it still remained above Scotland’s historical average. However, Scottish companies expect domestic sales to improve only marginally in the coming year, lagging behind UK-wide projections.
Employment growth in Scotland rose by 2.6% in the year to the first quarter of 2024, more than double the historical average. Salaries increased by 3.1% during the same period.
Capital investment by Scottish companies grew by 3.8% in the year to the first quarter of 2024, surpassing both the UK rate and Scotland’s historical trend. However, businesses plan to increase investment by only 0.2% in the next year, marking the lowest planned increase in the UK. Research and development budgets are also predicted to grow at a slower pace, slightly behind the UK average and well below Scotland’s historical norm.
David Bond, ICAEW director for Scotland, commented: “It’s encouraging to see business confidence in Scotland reaching its highest level in two years, driven by lower inflation, strong export growth, and higher profit growth. But regulatory requirements and the tax burden remain significant challenges, with Scottish businesses feeling the weight of these pressures more than their counterparts elsewhere in the UK.”
Overall in the UK, business confidence more than tripled to 14.4 on the index, surpassing pre-pandemic levels for the first time in two years as economic conditions showed signs of improvement.
