Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q3 2023 – one of the largest and most comprehensive surveys of UK business activity – put confidence at 6.4 for the second consecutive quarter, ahead of the UK average of 2.9.

Scottish companies are more positive about their domestic sales prospects than most other regions or nations and expect growth to continue at around the current rate. Domestic sales growth stood at 5.4%, year-on-year in Q3, which is high both in historical terms and when compared to the UK average, while export growth has followed a similar trajectory.

Inflation has continued to be a challenge, with input prices in Scotland rising at the fastest rate on record, outpacing all other nations and regions in the UK, though this is expected to slow considerably in the year ahead.

Despite facing cost rises that outpace the rest of the UK, Scottish businesses are raising selling prices at the UK’s lowest rate, with this trend likely to continue. Salary growth has also reached a record high, which at 5.0% is the highest growth rate in the UK. While the rate of increase is anticipated to slow in the year ahead, the figure is expected to be above the UK average and historical levels. 

Meanwhile, concerns regarding customer demand were cited by 38% of respondents as a growing issue, a considerable increase from Q2. Regulations are the most prevalent challenge, cited by more than half of Scottish businesses and a more pressing problem in Scotland than in the rest of the UK. 

Companies in Scotland are hiring new staff at a slower rate than in the rest of the UK, although this is still in line with the historical average for the nation. But in the year ahead, Scottish businesses plan to expand their workforce faster than in any other nation or region in the UK. 

Capital investment in Scotland rose slightly faster than the UK average and Scotland’s historical norm, at 2.9% in the year to Q3 2023. Businesses expect this to increase to 3.7% in the next 12 months, which would be the UK’s fastest increase. Research and development budgets also increased in Scotland by 1.8% in Q3 and are expected to rise further in the coming year by 2.9%, which would also be the fastest rise in the UK.

Profits grew by 3.4%, broadly in line with Scotland’s historical average, with similar performance expected in the year ahead.

Overall in the UK, business confidence remains low – particularly in the construction sector – as concerns over high interest rates and weakening sales growth persist, with sentiment at 2.9 on the index.

David Bond, ICAEW director, Scotland, said: “It’s promising that Scottish businesses are more confident than the UK average, but challenges remain.

“Sentiment remains below pre-pandemic levels, and concerns over access to capital, late payments and customer demand have all got worse, while input and selling price inflation also outpaces the UK figure. Nevertheless, prospects for growth are strong.”