Highlands and Islands Business Survey Shows The Challenges

16th February 2026

Businesses in the Highlands and Islands have continued to perform well over the past six months despite having experienced significant challenges.

This is according to the latest business survey commissioned by Highlands and Islands Enterprise (HIE).

Fieldwork was carried out between 28 October and 5 December 2025, and more than 1,000 businesses responded. Questions focused on the most significant challenges faced by businesses and the impacts of those challenges, as well as staffing and recruitment issues.

The results suggest confidence in Scotland's economic outlook has declined slightly, from 53% to 47%, since the previous survey carried out last summer, a pattern typically seen in autumn waves of the survey.

Nevertheless, the resilience and ambition of rural businesses remains strongly evident. Nearly three quarters (74%) rated their performance over the previous six months as either fairly steady, quite well, or exceptionally well, while a quarter (25%) said they'd struggled slightly or markedly.

Nearly half (48%) of businesses were striving for growth, while 36% were content with their performance and 13% were looking to downsize.

Almost all (93%) said they were experiencing significant challenges, with increased cost of doing business being cited most frequently, by 75% of businesses. For these, it was business rates, taxation and insurance, energy, and staffing costs that were having the greatest impact. Although increasing cost of raw materials continues to have a disproportionate impact on the construction, manufacturing and food and drink sectors.

Other significant challenges reported included changing regulations (48%), workforce issues (31%), supply chain and logistics (30%), and reduced demand (29%). Just over a quarter (26%) were facing financial challenges, with profit margins, cashflow and inflation of most concern to them.

In response to the challenges, more than half (55%) of those experiencing significant challenges had increased or planned to increase prices while 36% said they planned to use cash reserves. Sourcing alternative materials goods and services and reducing operations and opening hours were other actions being taken.

Some businesses were innovating in response to challenges faced, most commonly making energy efficiency improvements (41%), adapting products or services (34%) and exploring the use of AI and automation (17%).

Around two-thirds of businesses (68%) experiencing significant challenges had postponed business development activities as a result. In terms of workforce, this included increasing employee wages or benefits, recruiting new people and staff training and development.

Investment was also impacted, with some businesses delaying development of new capital projects, developing new products or services, or upgrading or moving premises. Investment in AI, automation or digital technologies was also impacted along with net zero transition.

Where workforce was a challenge for businesses, the greatest concerns were staff recruitment, the cost of labour, the ability to pay competitive wages and staff retention. Almost two in five (37%) said they did not have enough staff or the right level of skills in their business. Recruitment efforts in these businesses were hampered by lack of applicants or applicants not having the required skills or experience.

Encouragingly, many (63%) were trying to recruit young people, including apprentices and graduates.

A small number of businesses said applicants had turned down job offers due to accommodation issues, business location, transport, work patterns or pay.

Martin Johnson, HIE's director of strategy and regional economy, said:

"We’re extremely grateful to all those who took the time to share valuable insights into the issues and opportunities facing businesses in the region.

"There’s no doubt that challenges prevail but it’s also heartening to see businesses rise to these challenges. We’re seeing increased levels of innovation, for example. We’re also seeing many businesses making more effort to employ younger people, including through graduate and apprenticeship roles. These are areas where we have been very active in providing support.

"We’re sharing the survey findings with our partners and government as a valuable source to inform decisions on tailoring support to best meet the region’s needs and maximise opportunities."

The full report and summary of the Business Panel Survey is available on HIE’s website HERE
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