While business confidence in Scotland has increased to its highest level in two years, it lags behind the rest of the UK, according to new data from the Institute of Chartered Accountants in England and Wales (ICAEW).

The institute’s Business Confidence Monitor (BCM) for quarter 2 of 2024 shows a sustained increase in confidence, as businesses expect falling input price inflation to support further growth in demand as well as improved profits in the year ahead.

The BCM surveyed 1,000 chartered accountants across the UK, covering a range of sectors and company sizes, with results showing a sustained increase in confidence across the UK.

In Scotland, however, business confidence only saw a marginal improvement in Q2 2024, with the index increasing slightly to +15.6 from +15.4 in the prior quarter. While this is well above historical average, it does lag behind the UK average of +16.7, up from +14.4 in the Q1.

Despite this, Scottish companies appear determined, expecting to outpace all other regions in terms of both domestic sales and export growth over the coming year and are optimistic that profits growth will improve significantly.

Scots expect the pick-up in sales should be aided by the continued softening of input price inflation, although businesses in Scotland forecast the joint-highest input price rises in the UK.

As far as challenges, regulatory requirements is still the most widespread rising challenge in Scotland, more prevalent here than anywhere else in the UK.

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Labour market challenges are also more prominent in Scotland, including the availability of non-management skills, as well as anticipation of the fastest rate of salary growth next year.

Even with these obstacles, capital investment growth outpaces the national average and businesses expect to double this rate over the next year, with Scotland set to have the strongest investment expansion.

Scotland’s research and development growth also outpaces the UK, but businesses plan to moderate growth to match the national average.