SCC Quarterly Economic Indicator: Q2 2023 report & press release
Date Posted: 14 Jul, 2023
Chamber president issues wake-up call to governments as business investment flatlines
- LABOUR COSTS: Labour costs are now the biggest cost pressure and driver of price rises, cited by three-quarters of all firms.
- INVESTMENT: Growth is positive but significantly subdued, with most firms reporting no change to investment levels.
- HOUSEBUILDING: Due to pressures in the housing market, construction firms reported the largest contraction in housebuilding contracts since Q2 2020.
- INTEREST RATES: Interest rates are the second largest concern behind inflation, impacting 40% of all firms.
Stephen Leckie (pictured), President of the Scottish Chambers of Commerce said:
“The survey results highlight that persistent economic uncertainty is forcing firms to put investment decisions on hold, which makes prospects for medium and long-term growth far more challenging. The flatlining performance across the business community must act as a wake-up call to Governments north and south of the border. Governments must work with us if we are to revive investment decisions and maintain our competitiveness as a business destination.
“The eyes of the business community are firmly on how the First Minister will respond to the New Deal for Business Recommendations. Specifically, how he will reform non-domestic rates to incentivise businesses to grow as well as find the right balance between taxation and spend.”
On the labour market, Stephen Leckie said:
“Pressures from a tight labour market are making it difficult for firms to fulfil orders and inflation is placing great pressure on businesses to meet growing demands for higher wages.
“Strong competition for labour and skills are also leaving many firms with job vacancies that they simply can’t fill. We are rightly focused on ensuring our domestic skills and labour are supported into the jobs market, with many initiatives and reforms underway. However, businesses cannot wait for these schemes to pay dividends which could take years.
“That’s why we need to simultaneously accelerate plans for improved access to the international labour market so that we can address worker shortages. This action alone would lift some of the pressure facing businesses and demonstrate that we have a UK Government which listens to business.”
On inflation and price rises, Stephen Leckie said:
“Inflationary pressures are easing for firms, but it is still too high with most businesses still expecting to increase their prices next quarter.
“Firms are now increasingly feeling the impact of consistent interest rate rises by the Bank of England attempting to cool inflation. Up to this point, businesses have had to adjust to seeing interest rates mainly squeeze their borrowing and input costs but now they are increasingly feeling the pinch in other ways, with consumer spending stifled and now the housing market coming under pressure.
“It is critical that the right balancing act is struck from the Bank of England on interest rates or there is a threat that spiralling interest rates will make repayments simply unsustainable in the medium and long-term. Governments must also consider what regulations and upfront costs can be reduced or paused to reduce the costs burden on business such as a temporary reduction in VAT.”
Commenting on the results, Professor Mairi Spowage, Director of the Fraser of Allander Institute, said:
“Despite the latest data showing little movement, we still expect that inflation will come down as we move through 2023 as we compare to the higher price levels in 2022. This chimes with the expectations in the survey today, albeit there are significant sectoral variations.
“The expectations are that inflation will get down to around 5% by the end of 2023 – meaning that while the Prime Minister may meet his commitment to halve inflation it is looking much closer than it did before. It is now not likely to be until 2025 when inflation gets back to the Bank of England’s target level of 2%.
“So despite the fact we are not in technical recession, it is still going to feel like a period of pain for many businesses.”