SCOTTISH business confidence fell by -3% to continue a downward trend during 2022, but there are signs of optimism for company profits and recruitment, according to the latest Accenture / S&P Global UK Business Outlook.
At +14%, the net balance of manufacturing and service sector firms in Scotland expecting activity to increase over the next 12 months was lower than the UK average of +18%, but still ahead of the European average (+4%). October’s results for Scotland compared with net balances of +17% in June and +34% in February.
More positively, despite tough economic conditions, Scottish firms remain more confident about profitability than their competitors across the UK. While confidence about profit fell to a net balance of -13% across the UK, in Scotland the balance rose from -4% in June to +9% in October.
Moreover, optimism over hiring new staff has recovered from a balance of just +1% in June to +6% in October, though it is still below the UK average of +11%.
Inflationary pressures remain elevated, with just over a third (+37%) of firms in Scotland expecting to raise their salaries over the next 12 months in light of the cost-of-living crisis and tight labour market conditions – less than half the UK average of +77%.
Selling prices are also likely to rise sharply, contributing to firms’ confidence over profits. Yet optimism about profits didn’t prevent firms planning reductions in both capital expenditure (capex) and research & development (R&D) spending, with Scotland net balances of -4% and -6%, respectively. Capex and R&D forecasts on average in the UK were the lowest seen since the drop during COVID-19 in 2020.
Commenting on the findings, Stuart Chalmers, a Managing Director for Accenture in Scotland, said:
“It seems clear that Scottish companies are facing significant headwinds in what is likely to be a tough period for business right across the UK economy. Yet it’s heartening to see a cautious optimism about trading conditions overall, while positivity about hiring plans and profit suggest that Scottish firms are still feeling a degree of resilience.
“That resilience can be embedded further if companies plan for the long term, not just by investing in their people, but also in innovation, technologies and sustainability, so that they can prepare for more rapid growth when circumstances allow.”
The full report and accompanying data are available on request from economics@ihsmarkit.com.
