Positivity Over Business Volume But Pressure Of Inflation Rising For Scottish Firms

6th May 2022

From The Fraser of Allender Institute

Scottish businesses have positive expectations for activity levels, employment and turnover according to the latest Addleshaw Goddard Scottish Business Monitor report, but also report that inflationary pressure and supply chain issues pose challenges in the year ahead.

The report, which surveyed 500 firms in April from across the economy, revealed that all sectors of the Scottish economy recorded large and positive net balances for their volume of business in the first quarter of 2022, with this positivity expected to continue over the next six months.

Overall business sentiment remained positive, with all core indicators, except export activity, remaining optimistic. The rise in business volumes was matched in expectations for the levels of both employment and turnover in the coming six months.

However the report, produced in partnership with the University of Strathclyde's Fraser of Allander Institute, illustrated that the growing impact of inflationary pressure and supply chain issues is expected to have a marked effect on businesses, with more than one-third expecting to reduce operations due to higher energy prices, up from one-fifth in the last three months of 2021.

Businesses in the wholesale & retail (48%) and transport and storage (47%) sectors had the highest share of firms expecting to reduce operations due to energy prices.

The most common concerns among businesses for the rest of 2022 are the costs of energy (91%), the price of inputs (86%), and the availability of inputs (81%) and new staff (81%).

More than half of all businesses are finding it difficult to source goods and services. The transport & storage sector had the highest share of businesses reporting difficulties (77%), followed by 2 in 3 firms in the accommodation & food services sector.

And almost 90% of businesses expect their prices to increase more than normal over the next year, including every single accommodation and food service firm surveyed.

Staffing remains a source of concern for businesses, with both the cost and availability of employees proving a challenge. Across the Scottish economy, a lack of required skills and experience was the most commonly reported factor making filling vacancies difficult (76%), followed by a lack of applications (69%) and wage expectations (56%).

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