BUSINESS confidence levels in Scotland have risen to -2.4, according to the latest ICAEW Business Confidence Monitor (BCM). Although still in negative territory, this quarter’s result is a notable increase from the score of -11.9 seen in Q4 2016.
The latest Scottish score suggests that positive indicators for sales, including exports, and profit growth are still being tempered by the continuing uncertainties surrounding Brexit negotiations and the absence of a clear political and economic direction from UK government.
These uncertainties serve to depress business confidence and are evidenced by the reluctance demonstrated in Scotland – and across the UK – to significantly increase investment in business assets. Capital expenditure, research and development and staff investment are all expected to grow only modestly. While numbers employed grew by 3.2 per cent in 2017, this is expected to be just 1.6 per cent in the next 12 months.
The latest results show businesses expect to grow turnover by 4.5 per cent, helped by an improvement in exports reflecting stronger demand from Europe and other markets. Export sales grew by 3.1 per cent in the 12 months to Q4, and are anticipated to grow by 4.4 per cent in the next 12 months. Interestingly, businesses expect positive improvement in the domestic market, growing UK sales by 3.8 per cent from the modest 1.8 per cent growth achieved in the past year.
Profit margins have been under pressure for some time. Selling prices grew by just 0.1 per cent in the last year as businesses felt unable to pass on rising costs. Input price inflation in Scotland has been at 1.5 per cent for the year to Q4 2017 and total average pay rose by 1.7 per cent. Despite these drags, businesses in Scotland reported profit growth of 3.3 per cent to Q4 2017, the best since Q3 2015.
For the next year, however, businesses in Scotland now anticipate increasing their top line by raising sales prices by 0.9 per cent and increasing sales volumes by 4.2 per cent. Whilst managing pay growth to 1.7 per cent and input price rises to 1.8 per cent, companies in Scotland expect gross profits to grow by an encouraging five per cent over the next 12 months.
Research and development is set to grow by just 1.7 per cdnt, down from even the modest 2.4 per cent of the year to Q4 2017. In a similar display of caution, capital expenditure budgets reveal expected growth of just 2.1 per cent, pulling back from 2.6 per cent growth in the previous 12 months. Concerns over government regulation are growing, particularly amongst businesses in Scotland where 54 per cent businesses consider this to be a growing challenge.
ICAEW Scotland president Neil Strong, said: “While it is always encouraging to see confidence increasing, the fact that the latest score remains in negative territory indicates that whilst there is a degree of optimism within the business community, it tempered by concerns about what the future holds. With so much uncertainty remaining over issues such a Brexit, it is only to be expected that businesses will remain cautious.”
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