The Scottish Chambers of Commerce’s latest economic survey reveals a mixed picture for Scotland, indicating a persistent low growth cycle.

Concerns over inflation have eased slightly to 52% for this quarter, a decline from 75% in the previous quarter but still notably higher than the pre-inflation crisis level of 32% in Q1 2021.

Investment in Scotland continues to stagnate, with over half of the businesses reporting no changes to both total (55%) and training (54%) investment. Although more firms report increases in investment than falls, the overall investment landscape remains flat.

While the worry over interest rates has decreased from 50% to 40%, it remains substantially higher than the 15% recorded pre-inflation crisis in Q1 2021. Price rises, on the other hand, have stabilised, with fewer firms indicating plans to raise prices this quarter compared to the previous one.

The labour market in Scotland remains tight, posing recruitment difficulties for 40% of the firms this quarter, and labor costs continue to impact seven in 10 businesses.

Stephen Leckie, president of the Scottish Chambers of Commerce, emphasised the challenging economic conditions businesses face. He said, “These latest survey results paint a clear picture: Scotland’s economy is stuck in a low growth cycle. Persistently high inflation, higher borrowing costs, frozen investment and ongoing global uncertainty are placing businesses under significant pressure.”

“These issues must be addressed by all parties at the next General Election with businesses expecting clear plans which will boost economic growth and investment. Parties of all colours will be tested on whether they are listening to business and taking real action to back business growth.”

On the labor market, Leckie commented, “Skills shortages and availability of talent continue to act as a major barrier for business expansion. The Scottish Government’s £2.4 billion investment into colleges, universities and the wider skills system must remain agile to align with future economic demand to ensure we have a talent pool ready to contribute to the economy.”

“Businesses are rightly asking why practical existing schemes such as the Flexible Workforce Development Fund have been scrapped, considering the challenges firms face regarding training and upskilling talent. The news of a reduction in funded University places is also a major concern for the business community when we need as many highly skilled graduates to enter the workforce as possible.”

“On top of these concerns, companies are now grappling with the increasing tax burden of working in Scotland, making it more challenging to retain and attract talent. The introduction of a new income tax band is impacting on our competitiveness and depleting the spending power of individuals in the economy. Anyone in Scotland who makes more than £28,850 will now pay higher taxes than workers elsewhere in the UK.”

“Looking further afield, a coherent policy approach from the UK Government is urgently needed to attract and secure international talent. Recent announcements have caused confusion and impacts on our global reputation, which risks deterring skilled workers from choosing to live and work in Scotland.”

On inflation and interest rates, Leckie remarked, “While concern from high inflation and interest rates remains high, the levels of concern have slightly eased compared to the previous quarter. However, this should not be interpreted as an improvement as these figures are still too high and contributing to low business confidence.”

“Clarity on the future direction of interest rates policy will be critical to help unlock suppressed growth and investment in the economy.”

“If as currently generally forecast, inflation continues to ease, we expect corresponding action on interest rates to stimulate much-needed investment.”

On investment, Leckie said, “Over half of Scottish firms continue to report no changes to investment which has exacerbated the low growth cycle the economy is now in.”

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“New and increasing regulations are adding extra costs onto businesses, squeezing our ability to invest and leading many sectors into legislation fatigue.”

“The decision by the Chancellor to make full expensing permanent in the Autumn Statement was welcome but more must be done to shift the dial and incentivise firms to invest.”

Commenting on the survey results, João Sousa, deputy director of the Fraser of Allander Institute, acknowledged Scotland’s subdued growth but expressed a somewhat positive outlook for 2024. He said, “The final quarter of 2023 was full of policy events and economic news at both UK and Scottish level setting out the context for the year ahead.”

“Scotland might not be in a technical recession, but growth has remained subdued, in a stop-start pattern since the beginning of 2022. The latest figures show the Scottish economy just above pre-pandemic levels in October, following a monthly contraction of 0.5%.”

“Prospects for 2024 are a little more positive than what transpired in 2023. This is reflected in the survey results being published today. Confidence has proved resilient; sales growth has continued and some of the cost pressures are starting to ease. These factors give us some confidence that there might be an uptick into more sustained economic growth in the year ahead.”