Scottish businesses confident but political uncertainty a concern

Chancellor’s tough budget rhetoric may stall growth

Findings revealed that while challenges remain, business sentiment in the third quarter of 2024 remains “cautiously optimistic” with many companies reporting an increase in hiring and a reduction in the cost of running their businesses, buoyed by easing inflation rates and expectations of further rate cuts in the future.

Deputy director of the Fraser of Allander Institute, João Sousa, said: “Scottish businesses are showing a cautious sense of hope as they face today’s challenges. Drops in costs and interest rate cuts are good news, but there’s still a lot of uncertainty about the upcoming Budgets from the UK and Scottish governments.

“Scottish firms told us that political uncertainty is still top of mind, and it’s no surprise given some of the more pessimistic messaging from the UK Government on short-term growth prospects and tax rises. But there is underlying optimism, and a clearer sense of direction and purpose in the coming Budget might be able to harness that.”

However, the report also highlights ongoing concerns regarding exports, investment, and rising employee costs – the latter of which may become more pressing as businesses face potential National Insurance hikes reportedly being considered by the Chancellor.

Labour UK Budget trepidation as Scottish economy resilient

As businesses brace for the upcoming UK and Scottish government budgets, 85% of firms said that economic uncertainty is a major concern, while 75% view political uncertainty as a significant factor. Staff availability is also a major worry, with 78% of businesses reporting it as a critical issue for the next quarter. 

Looking ahead, one in four businesses said they expect moderate growth in the Scottish economy over the next 12 months, but confidence in strong growth remains limited. Only 4% of firms expect strong economic growth, while many still expect the economy to perform below expectations.

The report noted that Scottish businesses continue to “show steady confidence in their activity levels for the next six months”, with expectations for business volume holding firm at a net balance of 16 to 17.

Encouragingly, for the second quarter in a row, fewer businesses said their costs have increased although about two in three firms reported that wages and employee costs remain their top cost pressure.

Scottish Government income tax calls’ effect on businesses revealed

“The pressure from borrowing costs has eased significantly, with only one in three firms now reporting this as higher this quarter compared to the previous three months,” the Institute noted.

These latest findings follow recent Fraser of Allander Institute commentary highlighting slower economic growth over the summer after a strong start to 2024, with political discourse around tough fiscal decisions impacting confidence.