Scottish business confidence slumps to seven year low

The latest Institute of Chartered Accountants in England and Wales (ICAEW) Business Confidence Monitor (BCM) has revealed Scottish businesses recorded a confidence score of -16.4 for Q3 – the lowest score since Q1 in 2009 and significantly below the +12.9 reading of a year ago.

The survey found that between April 21 and July 20 the institute observed a significant deterioration in already weak Scottish business confidence following the UK’s June 23 vote to leave the European Union and the latest figure is down dramatically from a score of -7.0 registered in the previous quarter.

Keith Proudfoot, the ICAEW director responsible for Scotland said: “We just weren’t in a very strong economic position before the vote. I think the uncertainty following the vote has eaten into such optimism as there might have been.”

Turnover growth in Scotland has more than halved over the last year, to 1.7 per cent year-on-year in Q3 of 2016, from 4.2 per cent 12 months ago.

The ICAEW also noted weaker turnover growth had been accompanied by a 0.8 per cent fall in prices charged by Scottish businesses over the last 12 months.

With input prices remaining flat and salaries continuing to grow at 1.3 per cent there has consequently been a downward impact on margins.

Profit growth has also slowed from 3.8 per cent year on year in Q3 of 2015, to 0.9 per cent this quarter, the lowest rate of growth since Q1 in 2013.

Employment levels remained broadly flat in the 12 months to Q3 2016 and the growth in staff development budgets has been just 1.1 per cent year on year.

Despite this, Scottish businesses still expect growth in the year ahead, the ICAEW says, albeit at a slower pace than forecast a year ago.

But while noting Scottish businesses were projecting turnover growth in the coming 12 months, Mr Proudfoot, said this was a “pretty minimal” 2.9 per cent.

Although, with exports predicted to grow a little faster than domestic sales (3.4 per cent and 3 per cent respectively), this is significantly better than the 1.7 per cent achieved over the last 12 months and export growth is expected to be supported by the depreciation of sterling, although a weaker pound will also place upward pressure on input prices.

ICAEW Scotland president Andrew Hewett said: “It is always disappointing to see confidence continue to fall, but caution is often to be expected in times of wider uncertainty. With the EU referendum, the Holyrood elections and talk of the possibility of another Scottish independence referendum hitting the headlines in recent months, it is not entirely surprising that businesses are circumspect in some of their expectations. It is, however, encouraging to see optimism in terms of growth for the coming year.”