Scottish businesses optimistic despite uncertainty

David Kirchin, head of Scotland at Addleshaw Goddard
  • More firms optimistic about business and employment levels compared to previous quarter
  • Growth in activity and sentiment within construction industry
  • Hospitality and accommodation sectors continue to be hardest hit

SCOTTISH businesses are more optimistic for the future now, compared to the end of 2020, according to a major survey published today (10 February 2021) conducted with more than 500 firms.

The Addleshaw Goddard Scottish Business Monitor – produced in partnership with the Fraser of Allander Institute – indicates that more firms are optimistic about their volume of business and levels of employment in the next six months, when compared to the previous quarter. Many respondents, however, still highlighted feelings of uncertainty with a large minority expecting a reduction in volume of business and employment.

Confidence levels within Scottish businesses remains unsettled as the impact of Covid-19 and the UK’s new trading arrangement with the EU continues to create nervousness amongst all industries.

The Scottish construction sector has experienced a period of growth and recovery going from the sector with the lowest sentiment in spring 2020 to the highest sentiment in the fourth quarter of the year. 

However, results highlight the continued challenges the hospitality and accommodation sectors face, with more than one in ten businesses reporting their chance of survival over the next six months as unlikely or very unlikely. This is just less than double the national average.

Other key findings include:

  • Since the last quarter, more businesses are reporting that home working has affected performance management of staff and productivity levels, but there has also been an increase in those expecting to permanently reduce their office footprint.
  • Business ratings of how the Scottish and UK Government have handled the public health crisis have remained unchanged over the quarter. However, ratings on understanding the challenges that businesses face and supporting businesses through the pandemic have fallen slightly for both governments.
  • 38% of businesses say the level of government support has been sufficient or very sufficient, while 40% of businesses say it has been insufficient or very insufficient.
  • More than half of all Strategic Framework Business Fund applicants said that the level of support was insufficient.
  • Of the businesses who trade with the EU, 57% reported negative or very negative impacts on their trade, while 1% reported positive impacts.
  • Economic uncertainty continues to be the most important issue affecting businesses over the coming three months. 98% of responding firms reported economic/business uncertainty as ‘important’ or ‘very important’, with 94% also reporting policy uncertainty as an important issue.
  • Over the last three months of 2020, a much larger proportion of small businesses reported falls in volume of business than medium or large firms. However, all three groups reported a similarly negative net balance in employment.

Mairi Spowage, acting director at the Fraser of Allander Institute, said: “The Scottish economy is still in the midst of a crisis, with large amounts of uncertainty in the outlook. This survey marks a year of negative sentiment in the Scottish business base, the first time we have seen that since the financial crisis. However, optimism has improved since late 2020.

“Changes in the way many sectors are working will have long term implications for the Scottish economy. Many businesses are concerned that home working is impacting negatively on staff management and productivity, whilst plans to permanently reduce office footprint will have implications for town and city centres.

David Kirchin, head of Scotland at Addleshaw Goddard, said: “We can’t ignore the impact the ongoing health pandemic and Brexit has cast over the Scottish business community. Perhaps unsurprisingly, most firms are expecting Scottish economic growth to be weak in 2021 with only 8% of respondents expecting strong or very strong growth in the coming 12 months.

“Whilst the future certainly holds challenges for thousands of businesses, we must take some positivity from the latest findings as the majority of respondents (60%) report having secure levels of cashflow over the next six months. Our experience is that businesses are now taking practical and realistic steps to strengthen their balance sheets not only to weather the current climate, but also in readiness for future opportunities when activity levels increase.”

Following on from these findings and speaking with leading individuals within the sector, Addleshaw Goddard will release a construction sector report in the near future assessing its mood, challenges and opportunities.

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