Business confidence in Scotland fell further in the second quarter of 2025, though it still remains positive and above the UK average.

This is according to the latest Business Confidence Monitor from ICAEW, which surveyed 1,000 ICAEW chartered accountants covering a range of UK sectors, regions, and company sizes to ensure a representative picture of the UK economy.

The survey found that confidence among Scottish Businesses fell to +3.3 in Q2 2025, which is now below its historical norm of +6.3, though it has beat out the UK average of -4.2.

The score of +3.3 is the lowest recording since the end of 2023, with sentiment drifting down ovr recent quarters as national and international headwinds gather overhead.

The Scottish economy grew by 0.4% in Q1 2025, an improvement on GDP growth of 0.1% recorded in Q4 2024.

But much like the wider UK, more recent estimates for monthly GDP report a 0.2% decline in Scottish output between March and April 2025, with falls in manufacturing and accommodation & food services creating the largest drag on growth.

While confidence among Scottish households has also dipped, as the Scottish Consumer Sentiment Indicator fell in April to its lowest level in two years, the large pipeline of energy and transport related infrastructure projects is no doubt providing a buffer for some Scottish businesses to heightened global uncertainty.

Annual domestic sales growth in Scotland was weaker than any other UK region, while export growth remains below the national average. Scottish businesses are also less optimistic than average about the coming year.

While businesses anticipate export growth will improve by 3.1% next year, its projected growth is lower than the UK-wide forecast (3.5%) and down on previous quarters, with the weaker export expectations of Energy, Water and Mining businesses, which are significant in Scotland, likely weighing on the outlook.

Businesses in Scotland are concerned about slowing sales, as the main growing worry among businesses was customer demand (48%), higher in Scotland than the rest of the UK (42%).

Challenging trading conditions were also cited, as marketplace competition was the top challenge for 47% of those surveyed – also more widely reported in Scotland than the rest of the UK.

Scottish business are also more concerned about the tax burden, as well as regulation.

In terms of employment, the survey found a slight decline, with employment growth reported at -0.1% in the second quarter.  Scotland is the only UK region to report a decline in employment over this period, and similarly, has a lower projected employment growth (0.7%) than the national average (1.3%).

At the same time, wages only grew 2.5% in Scotland, while the UK average saw 3% growth in wages over the last quarter.

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Scotland’s cooling labour market is reflected in the proportion of companies citing the availability of skills as a growing challenge. Reports about the availability of management (13%) and non-management skills (17%) were below their respective historical averages in Scotland in Q2 2025.

However, the report did find that inflationary pressures have eased, as input price growth and salary growth slows.

Still, the investment environment in Scotland has weakened over the past year, with annual capital investment falling by 0.1% in the last quarter, the only UK region to report a decline.

However, a healthy pipeline of planned investment projects saw projected investment expand by 2.4% in the next 12 months, exceeding national figures (1.8%)  and the historical average (2.1%).

Research and development budgets did see an expansion int he last 12 months to the second quarter of 2025, and Scottish companies are planning on raising these budgets to 1.7%, a stronger uplift than expected elsewhere in the UK, though still behind the Scottish historical average (2%).