Cost pressures and a looming recession are weighing down on Scottish business confidence, according to the latest Scottish Chambers of Commerce (SCC) survey.
As a result, cashflow and profits are falling, investment decisions have paused, firms are raising prices and struggling to recruit and retain staff.
The research, conducted in November and December among 310 Scottish businesses, found that 82% intend to raise prices over the next quarter - a successive record high for the survey.
The retail and tourism sectors had the highest proportion of firms indicating future price rises, at 77% and 76% of firms respectively.
Concern over energy bills has halved since the previous quarter, attributed to the UK Government’s energy bill relief scheme which took effect from October.
Labour costs have now taken precedence as the leading cost pressure, cited by 72% of respondents. Concern over fuel costs and raw material prices remains high, both being cited by 60%
Concern from inflation has eased for a second successive quarter but remains high with 80% of firms citing it during the fourth quarter. The next highest concerns are interest rates (50%), which has seen nearly a 15% increase since the third quarter
On balance, all surveyed companies reported a fall in confidence compared to the previous quarter and a more significant fall compared to last year. On a sectoral basis, every sector reported a fall in confidence, with retail and tourism seeing the largest fall when compared to the previous quarter.
Stephen Leckie, president of the SCC, said: “All sectors are coming under immense strain because of upfront costs which are hitting cashflow and profits.
“There can be little doubt that recessionary effects are dragging the Scottish economy away from recovery and growth - the survey results paint a particularly worrying picture for the retail and tourism sectors with contractions in future sales and investment intentions.
“As relief packages come to an end, businesses are extremely concerned particularly on energy prices which continue to be volatile. Any sudden removal of this support could severely impact business survivability.
“We call on the UK and Scottish Government to urgently support SMEs by providing relief packages and a clear economic plan.”
Mairi Spowage, director at the University of Strathclyde's Fraser of Allander Institute, said: “Setting out the economic and fiscal context can currently feel a bit like groundhog day, with concerns about economic conditions simply seemingly get worse as we kick off 2023.
“The consensus now is that the UK and Scottish economy are in recession: and the only debate among forecasters is exactly when it starts and how many quarters long it will be.
“We must be positive about the ability of Scottish businesses to weather the storm – they have proven their resilience over the past three, very challenging, years,“ she continued, adding: “What is clear is that they will have to draw on that further during 2023.”
Within the responses to the survey, a services firm in Aberdeen stated: “The biggest business issue is uncertainty, it's hard to plan for anything just now; change can be good but not in a very short period of time.“
Similarly, a manufacturing company in the Highlands responded: “Increases in all business costs, with no sight of where it will all stop, are throttling our attempts to grow the business.
“Orders are looking positive but with not knowing how the economy will perform in the short and longer term it is curtailing the investment we would like to put into the company – the outlook on the economy feels bleak.“
The SCC noted that 94% of respondents to the survey were businesses with less than 250 employees.
A Scottish Government spokesperson said that it is supporting businesses by helping them to cut costs in a number of ways.
“These include delivering the lowest poundage in the UK for the fifth year in a row, reducing the business rates due and ensuring around 250,000 non-domestic properties in Scotland continue to be liable for a lower property tax than elsewhere in the UK.
“Along with businesses, the Scottish Government has repeatedly called on the UK Government to take urgent action where it holds the key policy levers to do so.
“This includes a reduction in VAT, targeting support with energy bills at businesses who need it the most, and an extension of the Coronavirus Business Interruption Loan Scheme and other loans.”
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