Gloomy economic forecasts fail to dampen mid-market moods in Scotland

Stuart Preston (Grant Thornton UK LLP)

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DESPITE depressing economic forecasts, Scottish mid-market business leaders are surprisingly optimistic about their growth opportunities. According to data from Grant Thornton UK LLP’s latest Business Outlook Tracker*, mid-market optimism has rebounded across all indicators monitored: 

  • Economic optimism has risen +12 percentage points (pp) since October 
  • Revenue growth expectations have risen +40pp since October 
  • Profit growth expectations are rising– increasing +28pp since October 

The results indicate that businesses are confident they can weather this economic downturn. Optimism regarding their funding position has risen +40pp since October. Over half (54%) are also confident that they have sufficient working capital to manage the impact of a recession for six months or more. 

Scotland’s mid-market continues to struggle to attract and retain talent, with 48% of respondents experiencing unusually high attrition rates. 50% are also struggling to recruit for open roles. 

Employers are pulling out all the stops in a bid to remain competitive. Over three quarters of respondents (78%) are planning to offer their people a pay rise in line with, or above, inflation, while 82% are also reviewing their employee benefits package to make it more competitive. Just under a third (28%) are also planning to invest more in skills development over the next six months. 

The research also finds that the mid-market is starting to look for ways to reduce its reliance on people. Almost three quarters (74%) agree that they are increasing their use of automation and digital. 

Stuart Preston, Partner, Grant Thornton UK LLP, said: 

“It is surprising that the levels of positivity in the mid-market are at odds with the current forecasts from the Bank of England and the government.  

“We assumed that a likely recession would lead to a more fluid labour market and we still expect unemployment to increase in 2023 and 2024 to more normal levels. This should start to ease the pressure off salaries and turn the balance of power back towards employers. Anecdotally, we are already starting to see signs of this, with more employers asking their people to come into the office more frequently. 

“But with the UK in the midst of numerous strikes around pay and working conditions, how far these demands are met could have a knock-on effect for the mid-market and place further salary growth pressures on employers. 

“That said, having seen first-hand how Scotland was able to respond to the challenges of recent years, with resilience, determination, flexibility, enterprise and innovation, there is a high probability that many businesses in our region will find a way to survive and thrive during the months ahead and this optimism will likely increase as we progress through 2023.” 

Despite depressing economic forecasts, Scottish mid-market business leaders are surprisingly optimistic about their growth opportunities. According to data from Grant Thornton UK LLP’s latest Business Outlook Tracker*, mid-market optimism has rebounded across all indicators monitored: 

  • Economic optimism has risen +12 percentage points (pp) since October 
  • Revenue growth expectations have risen +40pp since October 
  • Profit growth expectations are rising– increasing +28pp since October 

The results indicate that businesses are confident they can weather this economic downturn. Optimism regarding their funding position has risen +40pp since October. Over half (54%) are also confident that they have sufficient working capital to manage the impact of a recession for six months or more. 

Scotland’s mid-market continues to struggle to attract and retain talent, with 48% of respondents experiencing unusually high attrition rates. 50% are also struggling to recruit for open roles. 

Employers are pulling out all the stops in a bid to remain competitive. Over three quarters of respondents (78%) are planning to offer their people a pay rise in line with, or above, inflation, while 82% are also reviewing their employee benefits package to make it more competitive. Just under a third (28%) are also planning to invest more in skills development over the next six months. 

The research also finds that the mid-market is starting to look for ways to reduce its reliance on people. Almost three quarters (74%) agree that they are increasing their use of automation and digital. 

Stuart Preston, Partner, Grant Thornton UK LLP, said: 

“It is surprising that the levels of positivity in the mid-market are at odds with the current forecasts from the Bank of England and the government.  

“We assumed that a likely recession would lead to a more fluid labour market and we still expect unemployment to increase in 2023 and 2024 to more normal levels. This should start to ease the pressure off salaries and turn the balance of power back towards employers. Anecdotally, we are already starting to see signs of this, with more employers asking their people to come into the office more frequently. 

“But with the UK in the midst of numerous strikes around pay and working conditions, how far these demands are met could have a knock-on effect for the mid-market and place further salary growth pressures on employers. 

“That said, having seen first-hand how Scotland was able to respond to the challenges of recent years, with resilience, determination, flexibility, enterprise and innovation, there is a high probability that many businesses in our region will find a way to survive and thrive during the months ahead and this optimism will likely increase as we progress through 2023.” 

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