Business activity has risen in Scotland as the wider economy continues to reopen.
The Addleshaw Goddard Scottish Business Monitor, published in partnership with the University of Strathclyde’s Fraser of Allander Institute, indicates optimism about the volume of business, employment levels and turnover over the next six months.
More than 500 Scottish firms responded to the survey, and the proportion of businesses which have somewhat or very high confidence that they will continue trading through the next six months, has risen from 82.6% in the final quarter of 2020 to 91.8% in the second quarter of 2021.
Accommodation and food services have reported positive sentiment over the quarter for the first time since the third quarter of 2019 and expectations for over the next six months are the most optimistic since the second quarter of 2014.
More than a third (37.2%) of businesses have reported an increase in debt by a moderate or large amount throughout the pandemic.
The outlook on growth in the Scottish economy has worsened slightly, with 17% of businesses expecting strong or very strong growth in the coming 12 months, compared to 25% of businesses in the previous quarter.
Firms trading with the EU are also continuing to feel the aftermath of Brexit, as 70% reported that they were experiencing a negative impact on their trade with the bloc since the end of the transition period – and only 2% reporting positive impacts.
The report revealed that 38% of businesses stated that leaving the EU had negatively impacted their ability to fill vacancies; with the majority (60%) reporting that Brexit had no impact on their ability to fill vacancies.
Half of responding businesses currently had open vacancies to hire new staff, of which 77% said they were finding it difficult or very difficult to fill.
Elsewhere, the number of firms reporting an increase in their volume of business over the past three months was positive for the second quarter in a row, with many firms experiencing growth since the first quarter of 2021.
All sectors now have a positive net balance for the first time since the second quarter of 2019.
Most businesses continue to report that homeworking has had a negative impact on productivity, but just over 34% of businesses either have or will permanently reduce their office footprint.
In the long-term, businesses expect that almost two in three staff who previously only worked in the workplace will continue, more than one in five staff will work part-time at home and part-time in the workplace, and around one in 10 staff will work from home full time.
A further 51% of firms now expect to operate at normal or above normal levels of capacity over the next six months.
Meanwhile, 42% of businesses reported that their debt burden had increased during the period of the pandemic, of which 43% said it had increased by a large amount, and 46% by a moderate amount.
Comparatively, 12% of reporting businesses said that their debt had decreased during the period of the pandemic, with one in four business saying that it had decreased by a large amount, and 55% reporting a moderate reduction.
Mairi Spowage, director at the Fraser of Allander Institute, said: “While restrictions have now eased, it is evident that firms are still cautious about the months ahead, with the outlook on growth in the Scottish economy less positive than in the first quarter – given the turbulent 18 months we have experienced, it is unsurprising that firms are apprehensive.
“Businesses are aware that, with complications beyond the pandemic including the UK’s withdrawal from the EU, there will still be hurdles to overcome.
“That said, the latest results underline the positive direction in which we’re moving towards a strong economic recovery.”
Addi Spiers, restructuring and finance partner at Addleshaw Goddard, said: “We’re now seeing more firms embrace some sort of normality.
“Recruitment and retention of staff remains a top priority for all sectors and movement in the market will continue well into the new year as firms pivot to new, more flexible ways of working – particularly as most adopt long-term hybrid working models.
“I am unsurprised at the spike in the number of firms taking on more debt, as many needed external financial security through the challenges the pandemic brought.
“However, now that the economic landscape is more settled, I suspect firms will continue to focus on trading improvements and strengthening their balance sheets.”
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