Business sentiment in Scotland has fallen into negative territory for the first time since the end of 2020 with 70 per cent of firms expecting economic growth to be weak or very weak in the coming year.

Findings from the latest quarterly business monitor produced by Addleshaw Goddard in partnership with the Fraser of Allander Institute underline the deepening crisis as businesses struggle to cope with soaring inflation and plummeting consumer confidence. The October survey of 450 firms found that energy bills and staff remuneration are expected to be biggest cost drivers during the next two quarters.

"With the price of goods, energy, and borrowing on the rise, the majority of Scottish firms that we surveyed are expecting to wind down their operations or pass on costs to their consumers over the next year," Fraser of Allander director Mairi Spowage said.

"However, there is some good news from our latest survey. Supply chain issues continue to ease, which may dampen inflationary pressures, and the ongoing energy crisis has motivated Scottish businesses to consider making energy-efficient improvements to their processes."

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Businesses are calling for government support through a range of measures such as VAT cuts, a reduction in corporation tax and changes to business rates to help deal with the challenges they face as the economy heads into recession. When asked what they would most like to see, more than a quarter of those surveyed mentioned VAT or corporation tax cuts, while other support and help were mentioned by 22% of businesses.

The vast majority of firms said they will also be passing on increased costs to their customers, with 85% reporting that their prices are expected to rise by more than normal, or a lot more than normal, in the next 12 months.

Even so, nearly half of the Scottish firms surveyed expect to reduce their operations this year due to higher energy bills, up from 40% in the previous quarter. The report also indicated that a growing number are looking to tackle their own energy costs, with 60% increasing their focus on adopting energy-efficient processes.

"The results of the latest survey are no surprise, given the trends of preceding reports and the recent economic turmoil hitting the global, UK and Scottish economies," Addleshaw Goddard partner Alan Shanks said. "But we know from speaking to Scottish businesses that there is a strong focus on doing what it takes to tackle head-on all of the challenges facing them."

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He added: "There are important conversations to be had with businesses and those holding the economic levers, but also within businesses themselves to ensure they are doing everything in their power to manage risks and successfully trade through these challenges."

Meanwhile, new figures out today show that growth in Scotland's building sector is at its lowest since the start of last year as construction firms battle with soaring costs.

The RICS construction monitor for the third quarter of this year revealed a drop in the number of number of firms reporting growing workloads as companies added access to credit to their list of biggest worries.

"The deteriorating macro-environment is clearly taking a toll on the construction industry, with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour," RICS chief economist Simon Rubinsohn said.