The findings from a survey of more than 300 firms, conducted in December 2024 and January 2025, reveal that businesses are encountering challenges from multiple fronts.

These include having to navigate a slowing economy as well as policy changes announced in both UK and Scottish Government Budgets that are expected to have significant impact on these businesses.

Despite easing headline inflation rates, over eight in 10 businesses surveyed reported higher total business operating costs in the last three months of 2024.  While borrowing costs are gradually falling, only 13% of businesses indicated higher new capital investment in the last quarter of the year relative to the third quarter – which is unlikely to help longstanding concerns regarding Scotland’s productivity challenge.

The recent employer National Insurance Contributions changes are expected to heavily impact business planning for upcoming year, with seven in 10 businesses stating that these changes will have a significant impact on their operations in 2025.

Looking ahead, three-quarters of businesses expect the Scottish economic growth to remain weak or very weak in 2025. Businesses surveyed also indicate strong desire for greater economic certainty, with nine in 10 businesses indicating economic uncertainty is the most important over the first three months of 2025.

These findings come on the back of the latest Fraser of Allander Institute’s commentary, which highlighted weak economic growth at the end of 2024 and the impact of government decisions on economic growth in 2025 and 2026.

Other key findings include:

• Almost eight in 10 businesses have indicated higher employee costs in the last three months of 2024. More importantly, businesses are expecting higher employee costs to persist, with nine in 10 businesses expecting higher employee costs in the first half of 2025.
• While businesses are still assessing how to respond to changes to employers National Insurance Contributions, they expect the impact to be significant – with close to three quarters of businesses indicating significant impact to their company from these changes in 2025.

Sanjam Suri, knowledge exchange fellow at the Fraser of Allander Institute, said: “The survey results in the third quarter of 2024 indicate that Scottish businesses were showing cautious signs of optimism.

“However, the last three months of 2024 coincided with a weakening economy coupled with policy changes – especially employer National Insurance Contributions (NICs) are weighing on the minds of businesses as they begin 2025.

“Businesses have weathered a lot of challenges since the pandemic – spiking energy costs, high borrowing costs and inflation. Businesses will plan for upcoming NIC changes in their own unique ways.

“We will see over the rest of the year how the impact of NICs and other employment related changes crystallises into 2025. We will be surveying business sentiment again to get a better sense of how these dynamics evolve as the year progresses.”