Chambers survey

Rising costs putting pressure on firms’ profitability

Stephen Leckie
Stephen Leckie: cashflow is being hammered

Cost pressures are squeezing company profits though there is a growing belief that a slow recovery is under way, according to a new survey.

Businesses face a series of new cost increases from next month, including a hike in the minimum wage and rises in business rates.

The quarterly economic indicator for the Scottish Chambers of Commerce found contractions in cashflow and profitability.

More firms are being forced to raise prices which could threaten their competitiveness.

The top cost pressures are labour costs (76%), energy costs (60%) and raw material prices (44%), with more companies raising concerns specifically on labour and energy costs.

More than half of companies have also reported investment freezes and do not expect this to change next quarter, due to economic uncertainty.

However, the 400 companies that took part in the survey in February and March remain resilient and despite their concerns confidence is in positive territory.

Stephen Leckie, president of the Scottish Chambers of Commerce, said: “The latest insights from Scottish business underscores the extreme cost pressures facing companies in all sectors.

“The persistently high cost of doing business is hammering cashflow and profitability. The operating environment – nationally and globally – is exceptionally challenging.”

He said that geopolitics had been thrown into the mix and underlined the critical role governments will play to ensure smooth trading conditions.

“Red Sea disruption, unresolved global conflicts and emerging concerns on data sovereignty are live issues businesses and communities require clarity on.

“Despite this, Scottish businesses are showing signs of resilience, with business confidence and recruitment intentions remaining stable for the next quarter.”

Professor Mairi Spowage of the Fraser of Allander Institute said: “Economic data in early 2024 is showing that the economy is likely to be recovering hesitantly as expected, following the contractions in growth in the final part of 2023.

“Despite some of the headwinds reported by businesses – including increasing employment costs – business confidence is still in positive territory.

“There are clear sectoral differences, as might be expected, with the retail and hospitality sector in particular having a subdued set of results.

“The increase in the national minimum wage coming in April, while positive for workers, is likely to impact particularly on these sectors.”

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