Scottish business activity grew in the second quarter as the economy bounced back from a “fairly bleak” opening three months of 2024, and optimism about the nation’s expansion prospects over the next 12 months improved, a survey published today reveals.

However, the latest Addleshaw Goddard Scottish business monitor, conducted by the University of Strathclyde’s Fraser of Allander Institute, shows employment north of the Border has fallen for a second consecutive quarter and at a slightly faster pace than in the opening three months of this year. That said, the fall in employment in the latest quarter is still modest.

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Around 28% of Scottish businesses expect to see moderate or strong growth in the economy north of the Border over the next 12 months, up from 19% projecting such an outlook in the previous quarterly monitor.

Only 19% forecast very weak growth over the next 12 months in the latest survey, which sampled 332 firms from across the economy. In the previous quarterly survey, 25% had predicted such a scenario, and Fraser of Allander noted the latest reading suggests “a reduction in pessimism”.

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Subtracting the proportion reporting a decline from that experiencing a rise, a balance of 4.5% of the Scottish firms surveyed reported an increase in the volume of business activity in the latest survey. In the opening quarter, a net 7.1% had posted a decline.

Meanwhile, a balance of 5.4% of companies reported a rise in the value of business activity for the latest quarter. This also marks an improvement from the opening three months of this year, when a net 2.6% experienced a decline in this measure.

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However, a net 4.2% posted a fall in the volume of new business activity in the latest survey, albeit this was less bad than the balance of 13.5% reporting such a decline in the first quarter.

A net 2.7% of the Scottish companies surveyed reported a decline in the level of employment in their business in the latest quarter. In the opening three months of this year, a balance of 0.3% had posted a fall in employment.

Meanwhile, a balance of 10.5% experienced a decline in levels of new capital investment in the latest survey. This was less bad than the net 12.1% reporting such a decrease in the opening quarter of 2024.

Meanwhile a net 10.5% posted a fall in export activity for the second quarter. This signals a significant decline, albeit a less-steep overall drop than that indicated by the 16.4% posting a decrease in export activity in the opening three months of this year.

The survey showed 72% of firms expect total business costs to increase over the next six months, which Fraser of Allander noted is “an improvement from 85% last quarter”. Wages and total employee costs are expected to be the main drivers, the think tank observed.

João Sousa, deputy director of the Fraser of Allander Institute, said: “This quarter’s results are another step towards more positive news, despite some cautious notes - particularly on employment, which is a source of concern. But fewer pressures on [the] costs side and continued expectations of growth in the coming months indicate a more stable footing for Scottish businesses as they tackle the second half of the year.”

He added: “Businesses have highlighted political uncertainty as one of their main concerns for a number of quarters now. With the General Election due shortly, Scottish businesses will be hoping some of this uncertainty will dissipate, and whoever is in government from July 5 onwards will then move on to tackling other business concerns in a more stable and predictable environment.”

Alan Shanks, head of law firm Addleshaw Goddard in Scotland, said: "As we have seen over the past few years, in the face of challenges and a landscape of moderate economic growth expectations, Scottish businesses are embracing as optimistic an outlook as possible. Firms are navigating the complexities of the current climate with resilience, underscored by an anticipated positive trajectory in business volumes over the next six months. This shows the enduring strength and adaptability of the Scottish business community."