According to the latest Scottish Business Monitor from the Fraser of Allander Institute, Scottish businesses are increasingly pessimistic about their outlook for the coming year.

The survey, which was conducted between December 2024 and January 2025, and uncovered findings from more than 300 Scots firms, revealed that businesses are encountering challenges from multiple angles.

These include having to navigate a slowing economy, as well as the policy changes announced in both UK and Scottish Government Budgets that are expected to have significant impact on these businesses.

Despite easing headline inflation rates, over eight in 10 firms surveyed reported higher total operating costs in the last quarter of 2024.

While borrowing costs are falling gradually, just 13% of businesses indicated higher new capital investment in the last three months of the year relative to the third quarter. The Institute said this is unlikely to help longstanding concerns regarding Scotland’s productivity.

The latest survey also found that almost eight in 10 businesses indicated higher employee costs in the last three months of 2024, and are expecting higher employee costs to persist.

Regarding policy change, the recent employer National Insurance Contributions changes are expected to heavily impact business planning for the upcoming year. Seven in 10 businesses stated that these changes will have a significant impact on their operations in 2025.

Looking forward, three-quarters expect Scottish economic growth to remain weak or very weak in 2025. Respondents also indicated a strong desire for greater economic clarity, with nine in 10 businesses suggesting economic uncertainty is the most important over the first three months of 2025.

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Speaking on the findings, Sanjam Suri, knowledge exchange fellow at the Fraser of Allander Institute, said: “The survey results in the third quarter of 2024 indicate that Scottish businesses were showing cautious signs of optimism.

“However, the last three months of 2024 coincided with a weakening economy coupled with policy changes – especially employer National Insurance Contributions (NICs) are weighing on the minds of businesses as they begin 2025.

“Businesses have weathered a lot of challenges since the pandemic – spiking energy costs, high borrowing costs and inflation.

“Businesses will plan for upcoming NIC changes in their own unique ways. We will see over the rest of the year how the impact of NICs and other employment related changes crystallises into 2025. We will be surveying business sentiment again to get a better sense of how these dynamics evolve as the year progresses.”