By Scott Wright

Nearly 90 per cent of businesses in Scotland have declared they will increase prices by more than normal this year, while more than one-third expect to reduce their operations because of rising energy prices.

The latest Addleshaw Goddard Scottish Business Monitor, produced in partnership with the University of Strathclyde’s Fraser of Allander Institute, also found that more than half of businesses are finding it difficult to source goods and services amid the growing impact of inflationary pressures and supply-chain disruption.

However the report, published today and based on a survey of 500 firms in April, found that sentiment remained positive, with all sectors recording large and positive net balances of business volumes in the first quarter. This positivity is expected to continue over the next six months.

The survey found that the number of businesses expecting to reduce operations grew to more than one-third from one-fifth in the last three months of 2021.

Firms in the wholesale and retail and transport and storage sectors had the highest share of businesses expecting to reduce operations because of energy prices, at 48% and 47% respectively.

The most common concerns cited by firms were energy (91%), input prices (86%), the availability of inputs (81%) and finding new staff (81%), the survey found.

The transport and storage sector accounted for the biggest share of businesses reporting difficulties sourcing good and services, at 77%, followed by two in three firms in the accommodation and food services sector.

Every accommodation and food service provider surveyed said they expect to increase prices by higher than normal over the next year.

Mairi Spowage, director of the Fraser of Allander Institute, said: “Businesses continued to be optimistic in the first quarter of the year despite increasing concerns over inflation and supply chain pressures.

“However, there has been an increase in the number of firms that expect to reduce operations this year due to higher energy bills, with businesses in the retail and transport sectors particularly impacted by the ongoing hikes in energy prices.

“Due to global supply chain issues, Scottish businesses are also finding it hard to source the goods and services that they need and firms are facing higher prices for their inputs.”

“Attracting and retaining talent remain key challenges for Scottish firms, particularly those in hospitality, as skills mismatches continue to make it difficult to fill vacancies.

“It will be interesting to see how inflationary pressures weigh on business sentiment as the year goes on.”

Suzanne Moir, partner and specialist in energy and transport at Addleshaw Goddard, said: “The overall positivity shown in this report is good news and reflects what we are seeing and hearing from our own clients and contacts in all sectors of the Scottish economy. Businesses are adapting despite a combination of challenges, demonstrating both the resilience and innovation of these businesses.

“However the impact of rising prices, particularly in relation to energy, can be felt in all areas of our personal and business lives. The consequences of these price rises are already being felt, however one by-product will undoubtedly be an acceleration of the energy transition. All businesses, not only those operating in the energy sector, are being driven to seek new ways to generate power and reduce their energy consumption both to combat rising prices and play their part in the move to net zero.

“All sectors of the economy are also operating in a competitive market for employees, particularly as the report has identified a gap in the number of candidates with the skills and experience required. Salary is one aspect of the equation, as is supporting people to be the best they can be in a flexible, collaborative environment, with interesting work. That can be a real differentiator along with fair remuneration and providing that balance to attract and retain the right people is a challenge that all businesses face.”