Investment delayed as conditions deteriorate
Nearly half of firms in Scotland have cancelled or delayed planned investments in the past 12 months, according to the latest Addleshaw Goddard Scottish Business Monitor report.
The findings come as firms reported deteriorating business conditions across every measure – with more firms seeing a decline in activity than have seen a rise.
However, looking ahead there is a positive balance of businesses expecting the volume of activity to increase in the next six months.
Produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, the report on the third quarter of 2023 surveyed 323 firms from across the economy in September and October.
The data emerges after the Scottish Government unveiled weak growth figures for the third quarter of the year, but at 0.4% seeing the country avoid falling into recession.
The majority of delayed or cancelled investment has been in physical assets (74%) but firms also highlighted investment in the workforce (41%) and technology and information systems (36%).
Looking ahead, the latest survey found that 42% of firms are likely, or very likely, to engage in business investment over the next 12 months. To fund new investment almost 80% of those firms said they would use their own funds, with only 10% pursuing a bank loan, and as little as 4% considering using private equity.
Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “The deterioration across every headline measure we collect in the survey is a concern, but chimes with many other signals we are seeing in the economy of things slowing down as we move into the winter.
“These difficult investment conditions mean that the Autumn Statement announcement that full expensing is being made permanent will be especially welcomed by many businesses – bringing a bit of certainty to an uncertain environment.”
Laura Falls, partner in the corporate team at Addleshaw Goddard in Scotland, said: “The statistics relating to businesses investment decisions are pretty stark, especially when looked at in light of the fact that low levels of investment have previously been highlighted as a factor in the Scottish economy’s relatively low levels of productivity and economic growth.
“Some of that may be in part due to the fact that businesses are still largely focused on funding investment through their own means, rather than what they may see as the risk involved with seeking external backing.
“As someone who regularly works with businesses exploring other forms of investment, including private equity, it is clear that there is still some way to go to align the need for capital injection in Scottish businesses with the opportunities that exist to fund growth plans.”
Hiring picks up
The latest Royal Bank of Scotland Report on Jobs survey, also published today, points to a renewed rise in hiring activity across Scotland in November.
Mild expansions were signalled for both permanent placements and temp billings amid reports of successful recruitment campaigns and the commencement of projects at clients. In terms of labour supply, November data signalled divergent trends.
While permanent staff availability fell due to increased hesitancy among workers to move roles given the uncertain economic climate, temp candidate availability expanded for the second month running, in part fuelled by redundancies.
Meanwhile, overall pay pressures remained strong, with employers reportedly raising starting salaries and wages to attract suitable workers amid ongoing skills shortages.