Investment held back by economic uncertainty
Lingering economic uncertainty is forcing firms to put investment decisions on hold and holding back growth, according to new data on the Scottish economy.
Labour is now the biggest cost pressure and driver of price rises, cited by three-quarters of all firms responding to the latest Scottish Chambers of Commerce survey.
However, interest rates are the second largest concern behind inflation, impacting 40% of all firms.
The survey was undertaken between 15 May and 12 June and highlights that persistent economic uncertainty is forcing firms to put investment decisions on hold, which makes prospects for medium and long-term growth far more challenging, said Chamber president Stephen Leckie.
“The flatlining performance across the business community must act as a wake-up call to Governments north and south of the border,” he said. “Governments must work with us if we are to revive investment decisions and maintain our competitiveness as a business destination.
“The eyes of the business community are firmly on how the First Minister will respond to the New Deal for Business Recommendations. Specifically, how he will reform non-domestic rates to incentivise businesses to grow as well as find the right balance between taxation and spend.”
On the labour market, he said: “Pressures from a tight labour market are making it difficult for firms to fulfil orders and inflation is placing great pressure on businesses to meet growing demands for higher wages.
“Inflationary pressures are easing for firms, but it is still too high with most businesses still expecting to increase their prices next quarter.
“Firms are now increasingly feeling the impact of consistent interest rate rises by the Bank of England attempting to cool inflation.
“Up to this point, businesses have had to adjust to seeing interest rates mainly squeeze their borrowing and input costs but now they are increasingly feeling the pinch in other ways, with consumer spending stifled and now the housing market coming under pressure.”
Blackford launches strategy report
Former SNP Westminster leader Ian Blackford has launchd a new independent report mapping out the opportunity for Scotland to deliver a ‘step change’ in sustainable economic growth.
The report, ‘Roadmap for a Scottish Green industrial Strategy’ identifies a ‘window of opportunity’ to fully deliver on the potential of the Scottish economy but recommends two essential steps to kick start this process.
The report recommends a specific focus on higher education and alternative energy which should be seen as the “first treads on a strategic staircase for growth in value-added and productivity.’
The other major analysis suggests that this ‘step change’ in growth can be driven by the formation of a ‘powerful new partnership’ between key economic sectors and the Scottish Government.
The document was commissioned by Mr Blackford and was led by Sir Martin Donnelly, former Permanent Secretary at BEIS and DIT and former President of Boeing Europe, and Professor Dominic Houlder, Adjunct Professor of Strategy and Entrepreneurship at London Business School.
The independent report’s core recommendation advocates the formation of a central delivery mechanism, a new ‘Scottish Industrial Strategy Council’, at the very heart of the Scottish Government – formed, led and accountable to the First Minister.
Mr Blackford said: “This independent report confirms the sheer scale of opportunity that is now opening up in Scotland to build a greener, wealthier and fairer future. That clear confirmation of Scotland’s economic potential is all the more important in the current context of the UK’s deep difficulties with recent high inflation and high interest rates and its longer-term problems of low growth and low productivity.
“This report points the path to a different, more sustainable and stronger economic future, building on the huge assets that already exist in the Scottish academic sector as well as fully utilising the unfolding but immediate potential in green energy and industry.”
Professor Houlder said: “To deliver higher-value growth and increase productivity, Scotland needs to focus on fundamental economic building blocks where it has a competitive advantage. Developing and leveraging those competitive advantages – actual and potential – can enhance the broader economy and society.”
Sir Martin Donnelly added: “There now exists a clear window of opportunity to bring together expertise from wider Scottish society in support of a step change in Scotland’s sustainable growth. This will require new structures for delivery, the political will to make and keep to decisions on priorities, and continued support from the academic and business communities across Scotland.
“A new, powerful partnership between the Scottish Government and these key sectors and stakeholders can unlock this huge underlying economic potential that will deliver growth in the Scottish economy and deliver prosperity to the Scottish people.”