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Business facing 'pincer movement'

Firms put brakes on Investment to focus on costs

Pressure on Scottish business is rising, says SCC president


 

Scottish industrial sectors have experienced an investment slowdown as business costs and Brexit preparations take top priority. 

Firms are switching their focus to ensuring they are ready for Britain’s exit from the EU, but also facing up to the challenges posed by a range of additional costs which came into force this month. These include a rise in the minimum wage and higher business rates.

The latest Scottish Chambers of Commerce quarterly economic indicator survey for Q1 of 2019 shows:

  • On Wage Increases: Every sector in the survey faced rising wage pressures with construction and retail reporting the biggest wage increases in over a dozen years.
  • On Investment: Investment performance is lower in every sector year on year except construction, while investment intentions remain restrained confirming a wait-and-see approach to spending.
  • On Business Confidence: The level of business optimism is lower across all sectors but retail compared to the previous quarter. Manufacturing has been particularly hit, as confidence dipped to the lowest level recorded for the sector since 2012.

Tim Allan, chairman of the Scottish Business Advisory Group and president of Scottish Chambers of Commerce, said: “The prospect of a no-deal Brexit has undoubtedly taken a toll on business confidence in Scotland in the first quarter of 2019. Companies in Scotland are caught in a pincer movement of business challenges.

“On one hand, businesses are faced with increased cost pressures such as rising costs due to currency weakness and higher wages, and on the other they are hit by the dampening effects of political turmoil caused by the ongoing uncertainty of our future relationship with the EU. 

“There is an immediate urgency to deal with Brexit, which is hampering our ability to compete on the international stage. We see this borne out in the decline in confidence, difficulties in recruitment and challenges in exporting. Furthermore, restraint on plans to invest will do nothing to solve Scotland’s ongoing productivity challenge which requires sustained levels of investment in skills and training if we are to see the shift the economy needs. 




“Our survey has shown some real areas of robustness which highlights the resilience of Scottish businesses and their resolve to stay focused on creating jobs and paying taxes to fund vital public services. But the pressure on Scottish firms is rising, with the prospect of increased costs due to inflation, currency volatility, Brexit preparations and the prospect of increased taxation remaining as top concerns for all sectors.”

Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, said: “This latest Scottish Chambers of Commerce Quarterly Economic Indicator shows that Scottish businesses remain relatively resilient despite uncertain trading conditions.

“The lack of clarity about the UK’s terms of exit from the EU continues to cast a shadow over day-to-day decision making, with businesses clearly struggling to make long-term plans in such times.  

“Weak business investment has been a feature of recent times, and this latest survey shows that firms are becoming even more reluctant to make investment decisions at this present time. This is an unwelcome sign given the key role that investment plays in boosting productivity, and in turn improving long-term economic prosperity.

“With high rates of employment across the Scottish economy, the survey also identified that for many firms, pressure for pay increases remains on the up.” 



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