Business confidence in Scotland has moved into positive territory for the first time in a year despite rising costs.
Companies continue to face “very real difficulties”, a closely watched survey of chartered accountants has found.
Supply costs and consumer prices have soared at the fastest and largest rates respectively in almost 20 years according to business sentiment tracked by the Institute of Chartered Accountants in England and Wales’ (ICAEW) monitor for Scotland.
Scotland saw the highest export growth in the UK, and domestic sales also had one of the largest rates of increase, at 5.6% compared to the UK’s 4.9%, likely underpinning the latest positive confidence reading'
However, the growth of both exports and domestic sales is expected to slow in the year ahead, with the latter expected to be the slowest in the UK.
The business confidence monitor measured confidence up 6.4% for the second quarter, from a 0.2% decrease the previous quarter.
READ MORE: Confidence among Scotland's small firms tumbles
ICAEW said that to boost confidence, government plans must be formulated to deliver long-term growth by increasing the resilience of the UK economy and the transition to net zero, while enabling small businesses to operate more sustainably in a difficult economic environment.
David Bond, ICAEW director for Scotland, said: “It’s pleasing to see that confidence is back in positive territory, but while we are seeing rising profits, increasing investment and the highest export growth in the UK, these findings show that there are still very real difficulties to address.
“In particular, record input price inflation is having a real impact, while our businesses also reported growing challenges from the tax burden and regulation.
“It’s time for the UK and Scottish governments to deliver a growing and resilient economy which enables businesses of all sizes to operate effectively.”
READ MORE: Scottish businesses hit by skills shortages and staff turnover
The findings are broadly in line with the UK average, and slightly above Scotland’s historical average.
The monitior found companies in Scotland have faced a number of challenges, including record annual input price inflation which has been driven by the cost of energy, commodities and wages.
Input price inflation is running at its fastest rate in Scotland since the survey began in 2004. However, this is expected to slow down in the next year.
It means selling prices have grown sharply, at their largest rate since 2004, but a more modest rise is expected next year as input cost pressures ease.
Salary growth is more than double the historical average, reflecting a continued demand for workers. Again, this growth is expected to ease next year.
READ MORE: Business confidence in Scotland falls as costs spiral
The workforce in Scotland is expanding at a rate close to its historical high, and above the historical average.
The rate of growth is on a downward trend, however, mirroring expectations around domestic sales and exports.
Despite the higher costs for businesses, profits are continuing to rise, with growth of 5% expected to continue into the next year.
Meanwhile, 44% of businesses surveyed cited regulatory challenges as a growing difficulty, which may reflect the prominence of banking, finance and insurance in Scotland’s economy.
Concerns about the tax burden have reached a historical high, likely related to the recent increase in corporation tax. The number of businesses concerned about bank changes has surged, with 24% of companies reporting it as an issue, up 15 percentage points since the previous quarter.
Research and development budgets in Scotland are growing at the fastest rate in the UK, although a slowdown is expected next year.
Capital investment is up, and at similar levels to the UK average, although these levels are likely being held down by weak confidence and higher levels of spare capacity than the UK average.
Nationally, business confidence remains lower than the pre-pandemic average but still positive amid a backdrop of high inflation and interest rates and record wage pressures
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