Alan Shanks

Overall, while there is a mixed sentiment among responding businesses, there seems to be a moderate increase in optimism regarding the growth of the Scottish economy in the coming year.

Produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, the report on the second quarter of 2024 shows cautious optimism with the proportion of businesses reporting higher costs decreasing in every category, as the rate of inflation drops.

The survey of around 330 firms from across the economy found that that business activity improved in Q2 across almost every measure, with the proportion of firms experiencing an increase in the volume of sales and turnover returning to positive territory, after a fairly bleak set of results in Q1 of this year. Other conditions – volume of new business, level of new capital investment, and export activity, improved in Q2 but still show a negative net balance.

However, the net balance of firms reporting an increase level of employment has fallen further into negative territory, after being positive for most of 2023.

Perhaps unsurprisingly, as the country heads for a General Election, the vast majority of businesses expect economic/business uncertainty (89 per cent) and political uncertainty (83 per cent) to be important or very important over the next three months.

Other key findings include:

• More than a quarter of Scottish businesses expect to see moderate or strong growth in the economy over the next 12 months, up from 19 per cent last quarter.
  Wages and total employee costs are expected to be the main driver for any cost increases.
• The expected volume of business over the next six months has declined slightly since last quarter (18 down to 16 percentage points net balance) but still remains positive overall. This means that more businesses are expecting an increase in their volume of business over the next six months than a decline.

João Sousa, deputy director of the Fraser of Allander Institute, said: “This quarter’s results are another step towards more positive news, despite some cautious notes – particularly on employment, which is a source of concern. But fewer pressures on costs side and continued expectations of growth in the coming months indicate a more stable footing for Scottish businesses as they tackle the second half of the year.

“Businesses have highlighted political uncertainty as one of their main concerns for a number of quarters now. With the General Election due shortly, Scottish businesses will be hoping some of this uncertainty will dissipate, and whoever is in government from 5 July onwards will then move on to tackling other business concerns in a more stable and predictable environment.”

Alan Shanks, head of Scotland at Addleshaw Goddard in Scotland, said: “As we have seen over the past few years, in the face of challenges and a landscape of moderate economic growth expectations, Scottish businesses are embracing as optimistic an outlook as possible. Firms are navigating the complexities of the current climate with resilience, underscored by an anticipated positive trajectory in business volumes over the next six months. This shows the enduring strength and adaptability of the Scottish business community.”