The latest national Business Confidence Monitor (BCM) for Q2 2024 shows a sustained increase in confidence and is now at its highest level for two years, as businesses expect falling input price inflation to support further growth in demand and improved profits in the year ahead.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 15 April to 22 June 2024.
- Business confidence in Scotland only saw marginal improvement in Q2 2024 with the Index increasing slightly to +15.6, from +15.4 in the previous quarter. While the Index remains well above its historical average, it lags the UK average.
- Despite recent performance, Scottish companies expect to outpace all other regions in terms of both domestic sales and export growth over the coming year and are optimistic that profits growth will improve significantly.
- The pick-up in sales should be aided by the continued softening of input price inflation, although businesses in Scotland forecast the joint-highest input price rises in the UK.
- Regulatory requirements are still the most widespread rising challenge in Scotland and are more prevalent here than anywhere else in the UK.
- Labour market challenges are also more prominent in Scotland, including the availability of non-management skills and Scottish businesses anticipate the fastest rate of salary growth next year.
- Capital investment growth outpaced the national average and businesses expect to double the rate over the next year, with Scotland set to have the strongest investment expansion. Scotland’s R&D growth also outpaced the UK but businesses plan to moderate growth to broadly match the national average.
Business confidence in Scotland
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Business confidence in Scotland increased only marginally in Q2 2024, reaching +15.6, up from +15.4 in the previous quarter. Despite the rise in sentiment, Scotland fell behind the UK average (+16.7) but remains above the historical average of +6.1.
Domestic sales and exports growth
Domestic sales growth slowed for the fifth consecutive quarter in Q2 2024, dropping significantly to 1.0% and below the historical average of 3.0%. Businesses in the region are anticipating that domestic sales growth will improve in the coming year, to 5.9%, with Scotland ahead of all other UK nations and regions.
Annual export growth slowed to 3.0% from 4.4% in Q1 2024, now matching both the national and historical average for the region. Looking ahead, companies forecast exports will rise by 6.3%, with those in Scotland the most optimistic in the UK in this regard.
Business challenges
Scottish companies continue to see regulatory requirements as the greatest rising challenge, with 62% citing them as a growing concern. This is the highest proportion since the survey began and is more prevalent in Scotland than in any other region. Some of this rise can likely be attributed to the highly regulated Energy, Water & Mining sector but the growth in concern about regulation in Retail & Wholesale will also have fed into this result. Availability of non-management skills was also a more pressing challenge for businesses than any other region, with 33% of them reporting that they have faced greater difficulty recruiting skilled labour in Q2 2024.
Worries over the tax burden fell slightly compared to Q1 2024, however it remains a growing issue for 30% of Scottish businesses, nearly doubling the historical average (17%), while late payments were reported by a quarter of businesses, slightly above the national average (21%).
Labour market
Employment levels in Scotland increased at a softer rate in Q2 2024 compared to the previous quarter, with a rise of 1.6%. This slowdown in growth is likely linked to weak domestic sales and the increased proportion of businesses that are struggling with the availability of non-management skills. Despite easing, employment growth was still higher than the historical average (1.2%) for the region. Businesses expect to increase their staff levels at a faster rate over the coming year by 2.4%, which is marginally ahead of the 1.9% expansion forecast across the UK as a whole.
Total wage growth picked up in Scotland in the year to Q2 2024, rising by 3.9%, marginally ahead of the national average (3.7%). Scotland is the only region in which companies are predicting a further uplift in salary growth over the next 12 months. Businesses expect to raise salaries by 4.1% over the coming year, nearly double the historical average (2.1%) and the highest increase in the UK as they look to increase their staff levels amid lingering inflationary pressure and skills constraints.
Input, selling prices and profits growth
Input price inflation increased slightly in Q2 2024 to 3.9%, but was marginally below the UK average growth of 4.4%. Despite the expectation that input cost inflation will moderate further in the coming year, Scottish companies anticipate input prices will increase at a faster rate than the UK average over the next year, with growth of 3.2%. The more acute input price inflation expectations of Energy, Water & Mining companies will likely feed into the Scotland average due to the large regional concentration of the sector.
Businesses in Scotland lifted their selling prices at a slower rate than any other UK region in the year to Q2 2024, up 2.1%. However, it is the only part of the UK expecting to raise selling prices over the next 12 months at a faster rate than the previous year, with predicted price rises of 2.5%. This above UK average increase likely reflects business expectations of higher input price. Disappointing sales performance appears to have held back profits growth in Scotland, with companies reporting the weakest outturn across all parts of the UK at just 0.8% in Q2 2024, compared to the UK average of 3.1%. However, companies anticipate that improved sales and higher selling prices growth will restore profits growth to 5.0%, above the historical average of 3.5%.
Investment
Despite easing from the previous quarter, the 2.6% increase in capital investment spending in Scotland was still above both the historical average for the region (2.1%) and the national average (2.3%). Over the coming year, companies in the region expect to increase their capital investment expenditure at the fastest rate in the UK, with growth of 5.0%. This elevated investment growth can partly be attributed to the strong investment expectations of the highly regulated Energy, Water & Mining sector located in Scotland. R&D budgets in Scotland rose by 2.5% in the year to Q2 2024, marginally ahead of the historical average of 2.1%. Businesses plan to ease the rate of expansion slightly over the next year to 2.1%, outpacing most other UK nations and regions.
