How Scottish businesses view the future - Fraser of Allander Institute monitor

According to the Fraser of Allander Institute’s latest Scottish Business Monitor (SBM), firms continued to see declines in sales, new business activity, investment and exports for a sixth consecutive quarter. However, business sentiment turned “slightly positive” for the first time since late 2024.

Experts at the institute, which is based at the University of Strathclyde, said the results suggested a disconnect between current conditions and expectations. While underlying activity remains subdued, some firms appear to be anticipating stabilisation in the months ahead.

There are also signs that revenues are being supported by higher prices rather than stronger volume-based demand.

Turnover improved slightly despite falling sales volumes, indicating that price increases are helping firms offset weaker activity. Economists said this may prove difficult to sustain if cost pressures remain elevated.

Sanjam Suri, Knowledge Exchange fellow at the institute, said: “The latest results point to an economy that remains under pressure, with weak activity across most indicators. While the improvement in sentiment is encouraging, it appears to be running ahead of actual economic conditions.

“The key question now is whether this optimism translates into a genuine recovery, or whether firms face further headwinds from rising costs and weak demand.”

The latest monitor shows that cost pressures continue to weigh heavily on Scotland’s businesses. A large majority of firms reported rising costs, particularly for energy, imports and distribution, with many expecting further increases over the next six months. This is likely to place additional pressure on margins and future investment decisions, the institute noted.

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The survey also highlighted emerging structural shifts in the economy. Around half of firms report using artificial intelligence (AI), with adoption increasingly spreading beyond early adopters into sectors such as construction and manufacturing.

Overall, the SBM suggests that the Scottish economy is stabilising, but at a relatively low level of activity, with risks still tilted to the downside, the institute concluded.

Recent surveys have painted a mixed picture for Scotland’s private sector economy.

In March, it emerged that only one in five Scottish small businesses plans to take on new workers as the geo-political turmoil sees many firms ramp up their cost-cutting measures.

Around two in three (65 per cent) of Scotland’s small companies were working on plans to strengthen and grow over the spring months, according to the research from alternative lender Novuna Business Finance. However, that percentage was down from 70 per cent at this time last year. Just 18 per cent of smaller firms had plans to hire new staff - a fall from 24 per cent.

Meanwhile, business confidence in Scotland fell three points during April, to 48 per cent, according to the latest Business Barometer from Bank of Scotland.

Companies reported lower confidence in their own trading outlook month-on-month, down ten points at 53 per cent. When taken alongside their optimism in the economy, up four points to 43 per cent, this gives a headline confidence reading of 48 per cent, versus 51 per cent in March.