Activity has picked up in the last quarter

Business optimism has risen to its highest level since 2021 as energy prices cool and companies rebound more strongly than was forecast, according to the Addleshaw Goddard Scottish Business Monitor.

While a slight majority of firms still expect weak economic growth over the year ahead, almost every sector reported an improvement in the volume of business in the most recent quarter which saw a severe dip. 

The proportion of businesses expecting to reduce their operations this year due to higher bills dropped from half to around a third.

This was in spite of only 8% of firms believing that the Energy Bills Discount Scheme would adequately support their business in the next year.

The report, produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, showed that 69% of businesses (down from 81% last quarter) expect their prices to increase by more than normal this year as supply chain prices remain high.

Encouragingly, all indicators of business concern – energy costs, price of inputs, staff availability, input availability, retention of staff, and interest rates – have seen a reduction in firm’s reporting them.

The survey also found that filling vacancies remains a problem, but staff turnover is improving with the number of firms reporting difficulties in retaining staff dropping from 25% to 22%. 

A quarter of businesses surveyed found that it was easier than normal to retain workers in the current climate, up 10-percentage points from last quarter.

Employee costs and wages surpassed energy costs as the main cost drivers for businesses in the past three months. Scottish firms expect labour costs to be their main cost driver in the next six months, outweighing inflation, credit costs, and energy bills.

Alan Shanks, head of Scotland at Addleshaw Goddard, said: “It may be early days but any positive signs in our economy are to be welcomed and we hope that the results of our latest survey indicate that we may be on the way towards to some sort of ‘normality’ for business after such a tumultuous period.”