David Bond

Sentiment tracked by ICAEW’s Business Confidence Monitor (BCM) for Q2 2024 put confidence at 15.6 on the index, up from 15.4 the previous quarter and ahead of the historical average, but below the national reading of 16.7.

Although confidence is behind the UK average, Scottish businesses expect to outpace other nations and regions in the year ahead. Exports are forecast to rise by 6.3% year-on-year, while domestic sales are set to grow by a similar amount.

Input price inflation increased slightly in Q2 but remained below the UK rate. Input prices are forecast to rise at a faster rate than the UK average, likely due to the impact of the energy, water and mining sector on the Scottish economy, but input cost inflation is set to soften in the year ahead, which should aid sales, the report said.

Scottish companies reported a number of growing challenges, with three in five citing regulatory requirements as an issue, its highest ever reading and the highest rate across the UK. This was likely a result of concerns in the energy, water and mining sector, as well as from retail businesses.

The number of firms citing the availability of non-management skills as a growing challenge more than doubled to 33%, higher than anywhere else in the UK. The availability of management skills was also a growing problem, affecting more than one in five businesses, second only to Wales.

Staff turnover was also a more significant challenge in Scotland than UK, cited by 29% of Scottish businesses compared to 22% in the UK.

Capital investment spending remained above the historical average for the region and the national average, and is forecast to increase in the year ahead. This is likely related to strong investment expectations in Scotland’s energy, water and mining sector.

ICAEW has called on the new Labour government in Westminster to work closely with the Scottish government and the wider business community to achieve its mission of economic growth and deliver a vision for a prosperous and productive UK economy.

David Bond, ICAEW director, Scotland, said: “It’s encouraging that business confidence in Scotland has reached a two-year high, although sentiment lags the UK average. Nevertheless, companies are bullish about the prospects for exports and domestic sales in the year ahead.

“Scottish companies continue to face a number of growing challenges, with the number of firms citing regulatory requirements hitting its highest-ever figure.

“The new Westminster government must work closely with lawmakers at Holyrood to deliver on its manifesto promise to unlock stronger economic growth and deliver a prosperous and productive UK economy.”

Overall in the UK, business confidence rose to its highest level in over two years, likely driven by weaker input cost inflation feeding through into stronger profits growth and positive domestic and export sales projections, ICAEW said.