Economic growth slowed across most major economies in the third quarter of 2021. This is due to the fact that supply chain disruption restricted activity and Omicron infections reduced consumer spending. Supply chain issues have also caused problems for the UK’s economic recovery. Scotland’s economy is following a similar pattern of slower growth. However, Scotland has a strong labour market. Scottish businesses are generally optimistic as demand picks up (Scottish enterprise). Slow economic recovery has caused Scottish business confidence to fall. The question is: who is responsible for the fall?
Rise in Scottish business confidence
According to LLOYDS Banking Group (30 June 2021), Fraser Sime explained about business confidence rise in Scotland. Fraser Sime is regional director for Scotland at Bank of Scotland (BOS) Commercial Banking. He said: “Business confidence in Scotland rose again in June as firms across the country slowly but surely returned to normal trading. More firms are now planning to hire new staff this year. This is another clear indicator that the country is on the path to recovery. However, postponement to the easing of lockdown restrictions will reduce spirits, especially in the country’s tourism and hospitality sectors.
Omiron: Fall in Scottish business confidence
As it says in HIS Markit (15, Nov 2021), the UK business confidence dropped to a 12-month low in October. The data was from the Accenture/IHS Markit UK Business Outlook survey. It is a tri-annual survey based on a panel of around 1,300 companies in the manufacturing and services sectors. The survey results showed that UK businesses remained confident of a recovery in activity over the coming 12 months. However, there was a steep loss of impetus from earlier in the year.
According to insider.CO.UK (21 Dec 2021), Scottish business confidence fell as Omicron hit. Further restrictions and fears of lockdown impacted Scottish businesses. Scottish business confidence fell 3% to 24% during December. The statistics is from the latest Business Barometer from BOS Commercial Banking.
Similarly, the GLASGOW Chamber of Commerce says Scottish business confidence fell before Omicron impact (21 Dec 2021). Business confidence in Scotland fell three points during December to 24%. The survey captured responses between 26th November and 10th December.
The Press and Journal (December 21, 2021) also stated Scottish business confidence fell on Omicron fears in December. It fell with a three percentage point slide. Now only a 24% net balance of firms feel positive about future prospects. The latest BOS Business Barometer shows the overall business mood in Scotland some way behind UK business confidence.
Fall in Scottish business confidence in 2022
According to The SCOTSMAN (10th January 2022), business optimism is going to fall over the coming months. The fall is because of the fact that firms are facing the challenges that the Omicron variant has caused. The latest Business Trends report from accountancy and business advisory firm BDO showed a fall in business confidence. The report showed both optimism and output growth across the UK fell in December.
The fall happened as the Omicron variant and fresh restrictions started. The report’s optimism index slipped by 0.46 points to 103.81, and with supply chain challenges likely to continue into 2022, The BDO surveys cover over 4,000 different respondents from companies employing approximately five million employees across many industry sectors.
According to the Independence (25, Jan 2022), a study shows that Scottish business confidence drops as late payments increase. The Federation of Small Businesses found confidence is lowest in the retail, accommodation and food industries. A third of Scottish business owners say late payments from customers have increased in the last three months of 2021. This trend could see more firms close their doors for good, warned the Federation of Small Businesses. The latest Government statistics show that there are an estimated 338,000 small businesses in Scotland. This figure fell by nearly 20,000 in the first year of the pandemic alone.
As it says in Gov.Scot, (Nov 2021), the pandemic is not yet over. However, there is a recovery for the first time since the start of the pandemic. The economy is adjusting to an environment largely without restrictions in place. Of course, legacy effects of past restrictions and imbalances in demand and supply continue to affect the economy. At the same time, UK Government has gradually withdrawn financial support. It has ended the furlough scheme. There have also been temporary changes to VAT and Universal Credit.
Based on the furlough scheme, according to the UK Parliament, employers could get financial support from the government. They could get a government grant to cover the majority of wages for their employees. The scheme started in March 2020. It aimed to support employers to retain and continue to pay staff while businesses were closed.
To conclude, the British government has to manage the crisis. It is responsible for the fall in Scottish business confidence. It has to prevent further decline in business confidence in Scotland because Scotland is currently a part of the UK.