SCOTTISH firms remain stuck in survival mode amid increasing concern over interest rates, while business investment has flatlined, a major new survey has found.

Publishing its latest quarterly economic indicator today, Scottish Chambers of Commerce warns trading conditions continue to be challenging for firms, with president Stephen Leckie declaring that inflation, interest rates and labour shortages are “preventing growth and delaying investment”.

Mr Leckie, who is the chief executive of the Crieff Hydro Family of Hotels, called on the Scottish and UK Governments for support in their forthcoming budget statements to ensure Scotland remains competitive in domestic and international markets.

He said: “These results indicate challenging trading conditions for firms, with inflation, interest rates, and labour shortages preventing growth and delaying investment. For too many businesses, the priority is firmly stuck on survival.

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“Whilst business confidence is starting to pick up from the low levels of 2022, this renewed optimism is not translating into sustained performance and output from firms necessary to get our economy firing again.

“If Scotland is to maintain its competitiveness domestically and internationally, direction and impetus is needed from government north and south of the border in upcoming budget statements. These must outline clear steps to support business which instil confidence for investment and help stimulate growth.”

The Chambers’ third-quarter survey was carried out across August and September and drew responses from 380 firms.

With the Bank of England’s Monetary Policy Committee voting to keep the base rate at 5.25% in September, breaking a long run of rate rises, the survey found there was a “significant increase” in concern about interest rates among respondents over the quarter.

Concern over borrowing rates was reported by half of firms, up from 37% the previous quarter, reaching a five-year survey high.

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And while sentiment improved regarding inflation it continued to be remain a major worry: 70% of firms said they were concerned about inflation, compared with 75% the previous quarter. The survey found decreases in concern in the construction, manufacturing, and services sectors over inflation, “although there is still at least seven in 10 firms in each of these sectors reporting inflation as a concern”.

“In retail and tourism, this remains a concern for at least eight in 10 firms,” it found.

Mr Leckie said: “Our data shows that firms are becoming more concerned of rises in interest rates, which are designed to suppress consumer spend and make borrowing more expensive, both of which significantly impact firms.

“Looking ahead, we would urge the Bank of England to provide clarity on the future direction of interest rates or begin to allow time for the lag between rate hikes and the full effect on spending to be fully observed, so that there is less risk of causing unnecessary economic damage.”

The survey found more firms continued to report increases than falls, over half (55%) reported no changes to total investment, with this rising to 57% for training investment. These were both five-year highs for the survey.

Mr Leckie warned: “Scottish firms and indeed firms across the UK are actively pausing investment decisions.

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“Businesses urgently require upcoming fiscal events to provide some respite for those struggling to survive and incentives for those looking to expand.

“To that end, we urge the Scottish Government to use the progress made through the New Deal for Business to demonstrate that it can listen to business and take action that will support growth, such as maintaining a fair personal taxation regime, reviewing non-domestic rates, and reducing regulation.”

Mr Leckie added that Scottish firms will be looking for the UK Government to “play its part in unlocking investment” in the Autumn Statement, which Chancellor of the Exchequer Jeremy Hunt will announce to the House of Commons on November 22.

He said: “Pro-business measures are urgently needed. For example, reinstating the reduction in VAT (value-added tax) for hospitality and tourism, putting in place a five-year rolling guarantee on the full expensing tax allowance, and removing the 10% tax hike on Scotch whisky now in effect as announced in the Spring Budget.”