In just under a month’s time, the UK will have a new Prime Minister. Much of the Conservative Party leadership contest has focused on the UK economy which faces great uncertainty with businesses anxious as they face a gauntlet of challenges.

The most recent economic survey by Scottish Chambers of Commerce shows companies dealing with record cost and inflationary pressures, forcing businesses with little choice but to make difficult decisions which will impact long-term economic performance.

It is not an understatement to say that the cost of doing business has reached a tipping point. Cashflow is coming under severe pressure and as Government loan repayments kick in and business insurances increase, firms are dealing with a whammy of surging cost burdens.

This perfect storm of pressures is leading to a cost crisis for firms which is squeezing profits and places economic recovery into question, as firms cut or hold back on investment, put projects on hold, and delay hiring.

Rising inflation is also a major contributing factor to the decisions companies are taking.

UK inflation has reached 9.4 per cent, the highest in 40 years. Our survey indicated nine in 10 Scottish firms across all sectors are reporting major inflationary pressures.

There is an increasing fear that high inflation will be more persistent than initially forecast, with expectations now that it may take until 2024 before a return to more normal levels of inflation.

Tomorrow, the Bank of England will likely decide to again increase interest rates, following similar moves by the European Central Bank and the US Federal Reserve.

The risk is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months.

Its aim is to make people think more carefully about spending money, which it hopes in turn will reduce the demand for goods and services, and subsequently reduce prices. However, a record eight in 10 firms we surveyed are already intending to raise prices now in response to increasing costs for energy, labour, food and raw materials.

The energy price cap is expected to once again increase significantly in October.

This will be daunting for businesses and households alike, which are already struggling.

While the UK Government has implemented some support for households, with potentially more on the way, it has done little to nothing to shield firms from these spikes in energy costs.

With the IMF forecasting that the UK economy is set to be the slowest growing among G7 countries in 2023, it is urgent that steps are taken immediately to stimulate jobs, investment and confidence. Inaction will lead to suppressed economic growth and the collapse of many SMEs which will simply not be able to make ends meet.

Government must step in and support firms to manage soaring cost pressures by reducing hefty tax burdens, including the reversal of the increase in National Insurance, VAT cuts to energy bills which are crippling SMEs, and halting the need for the corporation tax increase from 2023.

Businesses are also dealing with unprecedented labour market challenges.

Staff shortages and recruitment difficulties remain stubbornly persistent across a range of sectors including hospitality and tourism, airports, transport logistics, the care sector, and engineering. This is causing business disruption, fuelling competition for workers and narrowing the available pool of talent.

The number of EU workers in the UK has fallen and despite increases in non-EU workers, the gap remains unfilled which is aggravating workforce availability and skills accessibility.

Without the workforce that is required, companies across the country have very few tools in the box to service business growth. Scotland’s demographic challenges are particularly pronounced, exacerbating the problem even further.

From a business perspective, the solution is clear.

Companies need a flexible UK immigration policy that aligns with economic need, removes bureaucratic barriers, and helps businesses source the skills needed to grow the UK economy. Skills shortages and their impact on economic performance is pulling us back right at the time when we need to be firing on all cylinders.

Expanding the shortage occupation list to include more jobs at more skill levels is one mechanism the next Prime Minister can activate immediately to show that the Government is listening to business.

But let’s be clear: the rush for talent is a global one and our immigration system must be internationally competitive. Australia is currently offering overseas postgraduates a post-study work visa of up to four years while the UK offers a maximum of three years. The UK offer needs to be more compelling if we are to attract more of the talent our economy craves.

The priorities of business are clear. We expect the next leader of the Conservative Party and Prime Minister of the UK to fire the starting gun with economic growth at the centre of their plan if we are to protect jobs and businesses now, and grow the economy in the months and years ahead.

Liz Cameron is chief executive of Scottish Chambers of Commerce