The survey of around 400 firms from across the economy found that “delivering long-term economic growth” was top of the wishlist, selected by 72% of businesses, followed by “tackling labour and skills shortages” (45%), “reducing UK business taxes” (43%), and “investing more on infrastructure” (39%).

Produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, the report on the first quarter of 2024 reflected a difficult period for business in Scotland as across almost every measure firms reported deteriorating business conditions. All of the survey’s regular activity measures - sales, new business, turnover employment, capital investment and exports – were in negative territory for the first time since the end of 2022.

Cost pressures continue to bite despite falling inflation, with 83% of firms in Scotland seeing their costs increase over the last quarter, compared to 78% last quarter. In every category, the proportion of businesses reporting that costs were higher has increased compared to last quarter. The increase in the cost of employing people were the most commonly cited, with 77% reporting that total employee costs were higher and 76% reporting that wage costs were higher.

The vast majority of businesses expect economic uncertainty, staff availability, and political uncertainty to be important or very important over the next three months – up considerably compared to last quarter.

However, firms are increasingly positive as they look ahead, with the expected volume of business over the next six months remaining positive, along with positive expectations of new business activity, turnover and employment.

Other key findings include:

• The net balance of firms reporting an increase in volume of sales has fallen to -7.1 percentage points meaning that more firms have seen a decline in activity than have seen a rise. The measure of new business has deteriorated significantly with a net balance of -13.5 percentage points compared to -9.6 last quarter.
• The net balance of firms reporting an increase level of employment has fallen into negative territory, after being in positive territory for most of 2023.
• Levels of new capital investment and export activity measures remain negative (more firms reporting falls than increases). However, capital investment is not as negative as late 2023.
• 85 per cent of firms reported that they expected total business costs to be higher in the next six months, which is a big rise from 67 per cent in last quarter.

João Sousa, deputy director of the Fraser of Allander Institute, said: “This quarter’s results were a bit of a mixed bag, with businesses noting that economic activity had fallen but expecting it to pick back up in the coming months.

“This is good news for the quarters ahead, and in line with our expectations of moderate growth for 2024 as a whole. The main cause for concern however is the continued poor outlook for capital investment.

“Scotland and the UK as a whole already have lower levels of investment than other advanced economies, and unlocking the factors holding back investment is key to sustained economic growth.

“This interacts with the risks around political uncertainty that worry businesses, and it will be crucial for political decision-makers to act in a way that reduces that perceived risk in the months ahead.”

Alan Shanks, head of Scotland at Addleshaw Goddard in Scotland, said: “Among some rather sombre figures, what is clear is that Scottish businesses remain resilient and optimistic, and are doing their utmost to drive the economic recovery that we hope so see over the course of 2024.

“The positive outlooks for the next six months show that, and my colleagues and I see it daily from clients in every sector. However, these latest results show just how important proper stewardship of the Scottish and UK economy is to the Scottish business community.

“The Scottish Business Monitor is a proven, up-to-date barometer of the sentiment among firms and those in a position to affect the levers of the economy would do well to listen to what the business community is saying.”