- Business confidence in Scotland drops slightly from July but remains among lowest in UK
- Investment intentions remain level for second year running
- More businesses expect to cut jobs during the next six months than expect to create them
- Economic uncertainty remains greatest risk to firms
Scottish businesses have reported the second lowest confidence rates in the country amid market uncertainty and concern over weak domestic demand, according to the latest Business in Britain report from Bank of Scotland.
Business confidence in Scotland – calculated as an average of respondents’ expected sales, orders and profits over the next six months – was down two points at 17 per cent compared with 19 per cent in July 2017, making it the second least confident region in the UK after Yorkshire and Humber.
However the net balance of firms looking to grow investment in the next six months remained stable at two per cent, the same level as in July 2017 while the share of firms anticipating stronger total exports remained positive at 17 per cent.
The twice yearly Business in Britain report, now in its 26th year, gathers the views of more than 1,500 UK companies, predominantly small to medium sized businesses, and tracks a range of performance and confidence measures, weighing up the percentage of firms that are positive in outlook against those that are negative.
Recruitment activity expected to slow
A net balance of seven per cent of businesses expect staff numbers to fall over the next six months, compared with a net balance of eight per cent that expected to hire more staff in July 2017.
The share of Scottish firms that continue to report difficulties hiring skilled labour has fallen by two points but remains relatively high at 43 per cent.
Meanwhile, the number of firms expecting to increase wages decreased by six points to 15 per cent, suggesting that companies are taking an increasingly cautious approach to pay.
Mixed picture across the UK
Business confidence in Scotland was the second lowest across the UK (17 per cent), with the highest being in the North East (38 per cent) and North West (31 per cent). The lowest was in Yorkshire and the Humber (15 per cent).
| Confidence Index | |||
| Region | Jan 2018 (%) | July 2017 (%) | Change (July – Jan) |
| North East | 38 | 33 | +5pts |
| North West | 31 | 26 | +5pts |
| West Midlands | 28 | 22 | +6pts |
| London | 25 | 20 | +5pts |
| East Midlands | 24 | 24 | – |
| South East | 24 | 28 | -4pts |
| Wales | 20 | 34 | -14pts |
| South West | 19 | 27 | -8pts |
| East of England | 18 | 22 | -4pts |
| Scotland | 17 | 19 | -2pts |
| Yorkshire & Humber | 15 | 23 | -8pts |
Jane Clark-Hutchison, Regional Director, Bank of Scotland said: “It’s disappointing to see Scottish businesses, towards the bottom of the confidence index but perhaps not unsurprising given the backdrop of economic uncertainty and concern over weak domestic demand.
“While confidence has dropped marginally from July, it’s still broadly in line with the sentiment felt this time last year. Encouragingly, Scottish firms remain stoic with their investment and export plans.
“Ultimately, uncertainty is at the front of Scottish business’ minds and we will need to see a shift to return to a position of growth. As Brexit negotiations continue to the next phase, we will hopefully see greater clarity which will help businesses to plan carefully and be flexible to see through the next six months and beyond.”
Risks ahead
Economic uncertainty is now the single greatest risk to firms in Scotland in the next six months, cited by 27 per cent of firms in the region, up from 22 per cent in July.
The proportion of Scottish firms reporting weaker UK demand as their greatest risk increased to 18 per cent from 14 per cent.
Uncertainty around Brexit negotiations continue
The share of Scottish firms that are confident about business interests being protected or promoted in Brexit negotiations fell to 38 per cent from 49 per cent previously, and is now only marginally higher than the share of businesses expressing a lack of confidence, which increased to 35 per cent from 25 per cent.
When asked about the impact of a ‘no trade’ agreement with the EU on their business, overall, 14 per cent of Scottish firms said that ‘no deal’ would be positive and 46 per cent said that it would be negative.
Confidence begins to grow in sectors which rely on domestic demand
Nationally, business confidence was highest in manufacturing, while sectors more dependent on domestic demand, such as hospitality, leisure, and retail and wholesale also recorded gains.
The only sector that reported a significant fall was construction, in which confidence dropped from 31 per cent to 14 per cent.
With no elections and no referendums in the diary, The Scottish Chambers of Commerce sees 2018 as a year to focus on growing Scotland’s economy.
As policy makers grapple with an underperforming economy, and Brexit negotiations intensify, this year SCC will focus on skills shortages and internationalisation to boost lagging exports, while delivering practical growth programmes for member companies.
In overseas trade, this will be the year when the Network’s careful relationship-building begins to yield measurable commercial results for Scottish companies.
Since assuming the SCC Presidency in April, I have been continually impressed by the capacity and inventiveness within the Chambers Network. Our task for 2018 is to consolidate the Network’s big gains of last year, while boosting Chambers influence to the wider benefit of Scotland.
Local chamber members include leaders in technology and business processes that can compete with the best. The whole nation can take inspiration from these world class manufacturing exporters.
Take Kongsberg Maritime of Wick, makers of the finest deep sea cameras in the world, using Scottish technology to explore the “Blue Planet”. Or Lochaven International in Stewarton who supply the Hogwarts school uniform for the Harry Potter film series, and for Harry Potter attractions in Florida and London. Or Michelin, based in Dundee for nearly half a century, whose capacity to produce 1000 tyres an hour will be further increased by a £100m investment.
By using our connections to forge business-to-business relationships in Europe and beyond, our Chambers Network will leverage the power of the international Chambers organisation to match member companies with the clients, suppliers and partners of the future.
In April, we will lead Scotland’s largest ever private sector-led trade mission to China, hoping to escort 30 businesses to Shandong Province, now seen as Scotland’s beachhead to this vast market.
As the overall shape of future trade relations between the UK and the EU emerges from the Brexit negotiations, SCC will continue to monitor the content of the deal, and advocate for Scottish business priorities, notably secure labour supply and continued ease of passage for goods and services.
Closer to home, where recent economic forecasts continue to paint a challenging picture for the UK and for Scotland, SCC will continue to press our governments to help business to thrive.
First and foremost this means improving the supply of skilled people. We will continue to give feedback to government on skills gaps while actively supporting initiatives such as Developing the Young Workforce.
On tax, we will reinforce our view that gains from even marginally increased taxes on middle and higher earners may be outweighed by losses in talent and investment if Scotland is perceived as the highest-taxed part of the UK.
Last year was a year of positive change for Scottish Chambers of Commerce. We have restructured our internal organisation, forged a new partnership and co-location with Strathclyde University Business School and made impressive gains in international trade. Meanwhile our mentoring programme has continued to thrive.
In advocating for members on important areas of public policy, such as non-domestic rates and income tax, the SCC has ensured that, for better and worse, Scotland’s political leaders have made their decisions in full knowledge of the views of the nation’s wealth creators.
With the welcome encouragement of Scottish Ministers, we will step up our efforts to build a constructive working relationship with the Scottish Government, which will continue to bear fruit in 2018. We will also further our work to increase influence at UK Government level, notably through our Westminster Reception in March 2018.
I wish all of you a very happy and a prosperous New Year.
The latest labour market figures have held to the trend of a strong employment rate, while continuing to illustrate a job market characterised by wages that are failing to keep pace with inflation.
In Scotland specifically, although there has been a quarterly decline in employment, the annual employment rate has increased by 1.7 percentage points, joint-second with the South East.
Scotland has also displayed the second highest annual increase in workforce jobs, by 109,000, with only the West Midlands displayed a higher figure.
Liz Cameron, Chief Executive, Scottish Chambers of Commerce said:
“For the seventh consecutive month, today’s figures show that wage growth has failed to outpace inflation, with the CPI rate of 3.1%, further biting into household disposable income.
“Vacancies are also now sitting at a record high across the UK, further emphasising the importance of continued investment into training and workforce skills, and the continued need for business to have access to a migration system that enables firms to recruit from outside of the UK when required.
“Although the Scottish employment market continues to show signs of strength, our focus is now on the upcoming Scottish Budget. It is critical that any measures put forward on Thursday recognise the existing pressures on household spending, and that policies targeted at Scottish business, at minimum, ensure a level footing with the rest of the UK.”
The Scottish Chambers of Commerce has welcomed the business-boosting measures in today’s Budget, and urged the Scottish Government to respond by “going even further” in areas of devolved competence to incentivise Scottish growth, productivity and boost the housing market.
Liz Cameron, Chief Executive of the Scottish Chambers of Commerce said that Mr Hammond had “unveiled some positive measures” to address the UK’s slowing growth and faltering productivity rates, but warned that the Treasury’s raising of the personal allowance and higher rate threshold increased the importance of maintaining a level playing field for tax across the UK.
Liz Cameron said; “The Chancellor’s moves to lower the tax burden for individuals and for businesses, via higher thresholds and an earlier move from RPI to CPI on business rates, increases the absolute necessity for Scotland to remain a competitive tax environment to attract investors and sustain businesses. The abolition of stamp duty on properties up to £300,000 for first time buyers also invites a response from Scottish ministers. The Chancellor’s commitment to tackle the housing challenge requires equivalent efforts to support the construction industry, ensuring the right skills are available and the industry is supported with investment, and it is welcome to see the Chancellor’s taking positive steps to achieve this.”
“When the finance secretary announces the Scottish Budget next month, the net result should not be to make Scotland the most highly-taxed part of the UK.”
The Chambers also warmly received the Treasury’s plans to allow transfers of tax history between buyers and sellers of oil and gas assets. This will make it easier to buy and sell fields and thus keep them producing for longer, and give buyers a tax refund for decommissioning costs.
In response to the plan, chief executive of Aberdeen & Grampian Chamber of Commerce Russell Borthwick, said:
“This is something that a number of our members, our regional MPs and industry partners have been asking for and the Chancellor has responded. This measure is key to allowing the industry to maximise the future economic benefit it will deliver to the UK; getting the assets in the North Sea in the right hands will enable that to happen.”
Elsewhere the Chambers welcomed Mr Hammond’s plans to freeze duty on beer and spirits, a boost for Scotland’s largest food and drink export category Scotch Whisky, and applauded the decision not to lower the VAT threshold, a potential administrative burden and competitive disadvantage to struggling small businesses.
SCC also welcomed the allocation of a further £2.3 billion for investment in R&D and an increase the main R&D tax credit to 12%.
More Scottish businesses will have the opportunity and support to trade abroad, thanks to a new initiative.
Five pilot Local Export Partnerships (LEPs) are being launched by the Scottish Government and Chambers of Commerce to increase the number of firms exporting their products and services.
The partnerships – in Cairngorms; Inverness/Highlands and Islands; Dumfries and Galloway/Scottish Borders; Edinburgh/Lothian and Glasgow/Lanarkshire – will bring together Scottish Development International, local authorities and a range of local support organisations. They will offer support and expertise to companies, particularly SMEs, with little or no previous exporting experience and help them enter international markets.
The Scottish Government is providing up to £400,000 to the Scottish Chambers of Commerce to develop the pilot programme.
Economy Secretary Keith Brown said:
“With Brexit looming, international trade and export has never been so vital to the Scottish economy, but it can seem daunting to businesses who haven’t yet ventured into the field.
“It is crucial that we maximise the help and support available to those firms – particularly the SMEs which are the lifeblood of our economy.
“These pilots will test new approaches to support businesses to export, opening a whole new world to companies and employers throughout Scotland.”
As outlined in the Scottish Government’s Trade and Investment Strategy, the partnership will use a collaborative, One Scotland approach. It will bring together individuals, businesses and agencies to promote an international business awareness and mindset, collaboration around shared trade objectives and mutual learning and support.”
Liz Cameron OBE, Director and Chief Executive of Scottish Chambers of Commerce, said:
“On behalf of the Scottish Chambers Network, we are delighted to have the opportunity to work closely with The Scottish Government and its agencies in this exciting new Local Enterprise Partnership initiative.
“These new LEPs will build on the strong partnerships we have recently forged with government in the field of international trade, which has already resulted in promising new routes to accessing important markets for Scottish goods and services, notably China.
“The combination of the Chambers’ network at grass roots and the experience and in-market expertise within government and its agencies is a powerful one. This LEP initiative allows us to show what can be achieved for exporters with a Team Scotland approach.”
The latest UK inflation figures for October show that consumer price inflation has held at its highest level since April 2012, with the CPI rate holding at 3.0%.
As with the figures released in September, the rate of inflation continues to be driven by increases in the price of food. Prices for food and non-alcoholic beverages increased by 0.4%. The increase in recreation and culture costs also continued from September, with a 0.5% rise building on the growth in prices observed last month. As highlighted by the ONS, the UK has consistently observed higher price inflation across both goods and services for the last six months.
Meanwhile, producer price inflation rose by 2.8%, mainly due to a slowdown in the rate of petroleum price growth. As with Consumer Prices, this is slightly lower than the markets were anticipating.
Liz Cameron, Chief Executive, Scottish Chambers of Commerce said:
“Although the hold in the CPI rate is a more positive outcome than the rise that many analysts were expecting today, the continued increase in the prices of food and recreational products emphasise the persistent pressure on the budgets of UK households. Furthermore, the CPIH figures highlight growing owner occupier costs, such as electricity and council tax.
“Rising mortgage payments, bolstered by the decision to raise interest rates, alongside the sustained weakness of sterling will also act to slow consumer demand and impact the bottom lines of businesses.
“These figures come at a crucial time for the Chancellor, and it is essential the Autumn Budget presents a range of measures to jumpstart the UK economy, including encouraging businesses to invest in their employees and boost productivity, look to new markets for trading opportunities and investment in essential infrastructure.”
The latest results from The Scottish Chambers of Commerce’s Quarterly Economic Indicator survey show optimism amongst most Scottish businesses continuing to improve during the 3nd quarter of 2017, reaching levels higher than a year ago in construction, financial and business services, manufacturing, and tourism.
The survey, produced by the Scottish Chambers of Commerce Economic Development Intelligence Unit in collaboration with the Fraser of Allander Institute of the University of Strathclyde, shows Scottish businesses remaining resilient in the face of significant policy uncertainty and a fragile Scottish economy which continues to grow at below trend levels.
Professor Graeme Roy of the Fraser of Allander Institute, one of the report’s contributors, has warned that record high employment levels are increasingly leading to recruitment difficulties across most sectors, leading to dampened growth and increases costs.
In a foreword to the report he said: “In such uncertain times, it is even more important that businesses focus on the long-term drivers of growth that they can control – including innovation, investing in productivity improvements, and developing the skills of their workforce.”
The survey also showed that tourism was a stand-out performer over the third quarter of 2017 due to the weak pound’s effect on foreign holidays.
By contrast there was cause for concern in the continued decline in the retail & wholesale sector in Scotland, with several indicators including sales revenue and cash flow continuing to decline along with employment trends, emphasising the added importance of a strong performance in the Q4 pre-Christmas period.
Financial services also appears to be building on its strong start to 2017 albeit activity has yet to fully recover to where it was three of four years ago, while despite improving optimism overall activity in construction continues to remain relatively fragile.
Neil Amner of Anderson Strathern, Chair of the Scottish Chambers of Commerce Economic Advisory Group, said:
“The results in our third quarterly economic indicator of 2017 point to a broadly positive picture for Scottish business. However, the retail sector in particular continues to show decreasing sales, in addition to cashflow and profitability challenges.
“This continues on from our findings in the second quarter which highlighted persistent issues in the retail sector. Levels of inflation have continued to impact on real terms wage growth, which has maintained pressure on household budgets and translated into recurrent challenges for this sector.
“With the exception of retail, our results generally show broad optimism of varying levels across Scottish business. In particular, the Financial and Business Services sector has displayed strong, positive results – with sales and profitability at their highest levels for several years. Unsurprisingly, this has translated into increased optimism, with third quarter optimism levels higher than figures recorded across Q3 2015 and Q3 2016.
“For many of our industries, recruitment difficulties continue to sit above the long term trend levels, exacerbated by the record high employment figures. Concerns continue to be raised by our members when it comes to seasonal workers and the attractiveness of the UK to EEA migrants during the uncertainty surrounding the Brexit negotiation process.
“Furthermore, members in more traditional industries have highlighted issues in attracting younger workers. Businesses in sectors such as manufacturing must do more to reimagine their workplaces to attract future talent, by focusing on increasing autonomy and flexibility in their working practices.”
The Scottish Chambers of Commerce welcomes the release of the latest labour market figures, which show that the UK unemployment rate has continued to hold at the lowest level observed since 1975.
Figures for Scotland continue to be positive, with Scotland holding to or exceeding the UK average.
The estimates released today for Scotland provide a more moderate picture of jobs growth as those estimated in the previous labour market figures, but Scotland continues to display the largest increase in the employment rate outside of London.
Liz Cameron, CEO, Scottish Chambers of Commerce said:
“Today’s Labour Market figures continue to illustrate the effects of high inflation, with real wages lagging the inflation rate for several months. As several commentators have observed, there is potential for this wage squeeze to continue, with inflation predicted to peak at 3.1%.
“With inflation continuing to rise, and many industry sectors observing pay growth below 2%, the Bank of England must hold their nerve on interest rates. An increase at this point would damage consumer confidence and spending at a critical period for the retail sector.
“It is essential that the Chancellor recognises these conditions in the upcoming budget. The budget must seek to increase business investment in skills and tackle our productivity gap with a range of measures, ensuring that wages increase and that consumer spending continues to act as one of the UK economy’s key drivers.”
Leaders from Scotland’s main opposing political parties came together on Thursday (21st September) in a pledge to work together with the Scottish Chambers of Commerce to heed the concerns of business and prioritise economic growth.
The Scottish Chambers of Commerce Network held its Annual Scottish Business Reception on Thursday, hosted by Scottish Conservative leader Ruth Davidson MSP, and addressed by Derek Mackay MSP, the Cabinet Secretary for Finance and the Constitution.
The reception was the second milestone event of the week for the Chambers network, which two days previously hosted the Chinese Ambassador to the UK, HE. Mr Liu Xiaoming at a dinner for 200 Scots business people in Glasgow.
In his speech to the gathering of business people and politicians in the Scottish Parliament, Scottish Chambers of Commerce President Tim Allan called for elected members at all levels to put business first and to do all in their power to make Scotland a competitive place to do business.
Tim Allan said: “Scotland’s businesses are the creators of our jobs and our wealth. Collectively, they are the engine which grows our economy, pays for our essential public services and provides the opportunities for our people to reach their potential. It is essential that all of Scotland’s politicians from across the political spectrum understand this and deliver policies that support business growth and competitiveness.
“Scotland’s politicians must work hard to understand the issues facing businesses in their constituencies and regions, but with an active network of 26 local Chambers of Commerce across Scotland, our network is seeking to make that task an easy one.”
Ruth Davidson MSP congratulated the Chambers on the success of its China initiative and said that, after a period of successive elections and referenda, the three and a half years before the next Scottish Parliament election were an opportunity for business, led by the Scottish Chambers of Commerce to “put their heads above the parapet” and voice their concerns and needs to their elected representatives. “Politicians whatever their strip should do everything they can to help business.”
“Business, entrepreneurship, the ability to help build and grow is virtuous in and of itself, it helps the country, it helps our young people to have opportunities and it is a public good. There is a shared belief across all the parties that we all have a role in oiling the wheels and getting the Scottish economy moving.”
Responding for the Scottish Government, Derek Mackay MSP described the Chambers as “a force for good”, and his own government as “pro-business and pro-growth” he said: “There is a great deal of agreement [with Chambers] around the skills agenda, around employment, around the fair work agenda, infrastructure investment, internationalisation and empowerment. We appreciate all of the great work you do nationally and locally in mentoring and supporting SMEs. Your work is absolutely invaluable.”
Liz Cameron OBE, chief executive of the Scottish Chambers of Commerce said: “We are grateful to Ruth Davidson and to Derek Mackay for joining us at our Business Reception, and are very encouraged by their words of support for the Chamber Network.
“We sensed a renewed mood of constructive engagement between business and government, firmly placing the economy at the centre. We will continue to work hard to play our part in making Scotland the best place to do business and all Governments will be measured by the impact of their decision making.”
Commenting on the latest UK inflation figures showing CPI increasing from 2.6% to 2.9%, Liz Cameron, Chief Executive, Scottish Chambers of Commerce, said:
“These latest figures which show that inflation has increased can be largely attributed to the rising price of clothing and footwear, with the import-intensive nature of the industry and the exchange rate pressure which arises through the supply chain, driving the increase.
“Additionally, prices at the factory gate are increasing and with CPI inflation continuing to outpace pay increases, this will raise some concerns for businesses when it comes to the availability of consumer spending. We are hearing early signs from members, although not widespread, of increasing costs being passed down the supply chain and potentially to the end consumer.
“With this in mind, and with only modest GDP growth, the Bank of England should hold steady on raising interest rates.”
