Confidence among Scottish businesses is expected to hold steady for the next six months, with many stuck in a ‘wait-and-see’ mode, as they look to the upcoming budgets for clarity on the economic direction of both Scotland and the UK as a whole.

This is according to the latest Scottish Business Monitor developed by the University of Strathclyde’s Fraser of Allander Institute, which conducted a surveyed of over 350 firms conducted in August and September.

The findings revealed that while challenges remain, business sentiment in Q3 2024 remains cautiously optimistic. Many firms report an increase in hiring and a reduction in the cost of running their businesses, buoyed by easing inflation rates and expectations of further rate cuts in the future.

However, the report also highlights ongoing concerns regarding exports, investment, and rising employee costs – the latter of which has become more pressing as firms face potential National Insurance hikes reportedly being considered by the Chancellor.

As businesses brace for the upcoming UK and Scottish government budgets, 85% of firms said that economic uncertainty is a major concern, while 75% view political uncertainty as a significant factor.

Staff availability is also a major worry, with 78% of businesses reporting it as a critical issue for the next quarter.

Scottish businesses continue to show steady confidence in their activity levels for the next six months, with expectations for business volume holding firm at a net balance of 16 to 17.

For the second quarter in a row, fewer businesses are saying their costs have gone up. However, around two in three firms report that wages and employee costs remain their top cost pressure.

Further, the pressure from borrowing costs has eased significantly, with only one in three firms now reporting this as higher this quarter compared to the previous three months.

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“Scottish businesses are showing cautious sense of hope as they face today’s challenges,” João Sousa, deputy director of the Institute, said.

“Drops in costs and interest rate cuts are good news, but there’s still a lot of uncertainty about the upcoming budgets from the UK and Scottish governments. Many companies are in a ‘wait-and-see’ mindset, looking for clear guidance on what to expect over the next year.

“Scottish firms told us that political uncertainty is still top of mind, and it’s no surprise given some of the more pessimistic messaging from the UK Government on short-term growth prospects and tax rises. But there is underlying optimism, and a clearer sense of direction and purpose in the coming Budget might be able to harness that. Will business get that? We’ll know better on the 30th October.”

Looking ahead, one in four businesses expect moderate growth in the Scottish economy over the next 12 months, but confidence in strong growth remains limited. Only 4% of firms expect strong economic growth, while many still expect the economy to perform below par.