David Bond

Despite this dip, confidence remains significantly higher than the UK average, standing at 13.1 compared to 0.2 nationally.

Strong annual growth in domestic sales and exports, particularly within the energy and water sector, has bolstered optimism in Scotland. These positive trends are expected to continue, leading Scottish businesses to forecast the highest profit growth of any UK region in the coming year.

However, challenges persist, with 43% of Scottish businesses citing the tax burden as their most widespread concern, a record high for the survey. Regulatory requirements also continue to be a widespread issue, although reported by a slightly lower percentage compared to historical averages.

Input price inflation has declined, and businesses anticipate further slowing, which is broadly in line with the UK average and Scotland’s historical average. Selling price inflation also declined, and further moderation is expected in the next 12 months.

While domestic and export sales were strong, increased costs, salaries and a survey-high employment growth partially offset these gains, resulting in profit growth of only 3%. However, projections of stronger sales growth, coupled with easing input costs and salary increases, have led Scottish companies to anticipate a 6.3% profit expansion in the next year.

David Bond, ICAEW director, Scotland, said: “Although business confidence in Scotland has taken a slight knock following the tax rises announced in the Autumn Budget, it’s pleasing to see our companies remain optimistic for the year ahead.

“In particular, domestic sales and exports were strong this quarter and are expected to maintain this trend. As a result, Scottish companies are predicting the strongest rise in profits out of any UK nation or region in the year ahead.

“We hope governments in Holyrood and Westminster will prioritise measures to boost the wider business environment and provide businesses with the clarity and stability they need.”

Investment growth is projected to slow slightly, influenced by economic uncertainty and high interest rates. Nevertheless, Scottish companies plan to increase R&D spending at a faster rate than most other parts of the UK.