Overall, quarter three (Q3) 2023 was a difficult period for business in Scotland, the Addleshaw Goddard Scottish Business Monitor report sombrely stated.

Over this year’s third quarter, Scottish businesses were found to have experienced a downturn in all their activities, with more firms reporting a fall in sales than those reporting an increase.

The report covering Q3 was dismal, with nearly half of firms having cancelled or delayed planned investments in the past 12 months, higher than the two in five firms reported in Q2.

Businesses are also citing government policy decisions as more of an issue over affordability and economic uncertainty, which were not as much of a concern as they were last quarter.

Costs are continuing to squeeze companies, but the nature of costs is changing. Two in three firms have experienced increased costs over the quarter, with workforce costs being the largest cost pressure.

Energy costs, however, have eased slightly, but still remain a major concern form most businesses, with half expecting energy costs to rise over the next six months.

Due to this expected increase in cost pressure, two in three firms expect to retaliate with their own price increases over the next six months, with wages and employee costs expected to be key drivers.

Scottish businesses are expecting that economic and business uncertainty (84%), staff availability (79%), and political uncertainty (74%) to be important over the next three months in guiding their business activity.

However, there is some good news gleaned from the report, as supply chain issues seem to be easing. Now, only about a quarter (24%) of firms find it difficult to source goods and services, down from 2021 Q4’s peak of 52%.

This appears to be where the positive outlook ends, though. Businesses are reporting high vacancy levels and difficulty finding new staff, with three in four firms stating they are more concerned than normal about the availability of new staff.

Of the 45% of Scottish businesses with current vacancies, 86% report they have found it difficult to fill these vacancies.

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The main reason for difficulty in finding staff appeared to be a lack of skills or experience – within this, technical skills gaps (79%) were the main issue reported, followed by problem solving and critical thinking (42%).

Retention is also a concern, with a quarter of businesses reporting difficulties, and 71% more concerned than normal about retention.

Troublingly, nearly half (47%) of firms have cancelled or delayed planned investment in the past 12 months. While most of this has been in physical assets (74%), some of it has included investment in the workforce (41%), and technology and information systems (36%).

These latter two could be disastrous for firms looking to bolster their digital transformation efforts, as new technology and skilled workers are vital as new technology emerges and becomes essential to business success.

Economic uncertainty, affordability, and the cost of borrowing has driven these abandoned investments.

Despite this, firms are looking to the future, with 42% saying that they were likely to invest in the next 12 months.