Laura Falls

The gloomy findings come as firms reported deteriorating business conditions across every measure – with more firms seeing a decline in activity than have seen a rise. However, looking ahead there is a positive balance of businesses expecting the volume of activity to increase in the next six months.

Produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, the report on the third quarter of 2023 surveyed 323 firms from across the economy in September and October.

While affordability and economic uncertainty have decreased as factors affecting investment plans, at the same time the influence of government policy decisions has increased as a factor in business decision making going from 30 per cent of firms surveyed to 36 per cent.

This news comes shortly after the Scottish government unveiled weak growth figures for the third quarter of the year, with growth of 0.4 per cent seeing the country only narrowly avoid falling into recession.

The majority of delayed or cancelled investment has been in physical assets (74 per cent), but firms also highlighted investment in the workforce (41 per cent) and technology and information systems (36 per cent).

Looking ahead, the latest survey found that 42 per cent of firms are likely, or very likely, to engage in business investment over the next 12 months. Interestingly, to fund new investment almost 80 per cent of those firms said they would use their own funds, with only 10 per cent pursuing a bank loan, and as little as four per cent considering using private equity.

Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “The deterioration across every headline measure we collect in the survey is a concern, but chimes with many other signals we are seeing in the economy of things slowing down as we move into the winter.

“These difficult investment conditions mean that the Autumn Statement announcement that full expensing is being made permanent will be especially welcomed by many businesses – bringing a bit of certainty to an uncertain environment.”

Laura Falls, partner in the corporate team at Addleshaw Goddard in Scotland, said: “The statistics relating to businesses investment decisions are pretty stark, especially when looked at in light of the fact that low levels of investment have previously been highlighted as a factor in the Scottish economy’s relatively low levels of productivity and economic growth.

“Some of that may be in part due to the fact that businesses are still largely focused on funding investment through their own means, rather than what they may see as the risk involved with seeking external backing.

“As someone who regularly works with businesses exploring other forms of investment, including private equity, it is clear that there is still some way to go to align the need for capital injection in Scottish businesses with the opportunities that exist to fund growth plans.”