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The Herald Scotland
6 days ago
- Business
- The Herald Scotland
Scottish economy headwinds to fore but also feather in cap
However, while the stream of news has highlighted the headwinds for the Scottish economy and the challenges facing businesses, with much of the woe emanating from further afield, it has not been universally dismal. Scotland's onshore GDP contracted by 0.2% in May, according to data published on Wednesday by the chief statistician. The Scottish Government chief economist directorate said: 'In May, the largest negative contribution to headline GDP was in manufacturing, which contributed -0.4 percentage points to headline GDP. This was partly due to the cessation of oil refining activity at the Grangemouth oil refinery.' Crude oil processing at Grangemouth ended on April 29, owner Petroineos confirmed at the time. There was some good news in the latest GDP data, however. Scottish onshore GDP is now calculated to have risen by 0.1% in April, having previously been estimated to have declined by 0.2% in that month. UK GDP fell by 0.1% in May, after declining 0.3% in April. That said, Scottish GDP in the three months to May was down 0.4% on the December to February period. And the outlook for the overall UK economy for the rest of this year is not something anyone will be turning cartwheels over. With the Labour Government having ruled out, seemingly for political reasons, the huge win of rejoining the European single market, it remains difficult to see anything that is going to lift the gloom over the UK outlook. Staying on the subject of the Labour Government, its hike in employers' national insurance contributions remains very much in focus. There were eye-catching findings on this front in the latest Scottish business monitor from the University of Strathclyde's Fraser of Allander Institute. Read more This covered the second quarter and surveyed more than 300 companies. And it found more than 60% of Scottish businesses have adjusted their operations because of the rise in employers' national insurance. Fraser of Allander observed 'many' were 'adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages'. And its monitor found nearly 40% of Scottish businesses expect to make more adjustments down the road in response to the rise in employers' national insurance. However, Fraser of Allander also saw some 'green shoots', in what is clearly a difficult environment for businesses not just in Scotland but throughout the UK. The research institute, while declaring the Scottish business community has 'had to deal with a plethora of challenges since the pandemic', said: 'Despite business sentiment becoming more pessimistic for the remainder of 2025, the outlook for growth in the Scottish economy over the next year is slowly becoming more optimistic. 'A total of 73.5% of businesses expect weak or very weak growth compared to last year. However, this is down from 79.3% in the previous quarter, suggesting possible green shoots on the horizon.' Read more Fraser of Allander added: 'Three per cent of businesses expect strong or very strong growth compared to the previous 12 months. This is an increase of 2.2 points from last quarter.' And it observed 23.5% of businesses now expect moderate growth, up 3.6 points from the first-quarter survey. Lamentably, a steeper decline in export activity in the second quarter is signalled by the business monitor. Josh Hampson, knowledge exchange assistant at Fraser of Allander, said: 'The ongoing uncertainty around trade continues to show up in the sharp decline in the export activity from what was already seen as a weak starting point in the first quarter of 2025.' On a more positive note, the rate of decline of volume and value of business activity or sales eased in the second quarter, the monitor shows. Employment also fell at a slower pace, as did the volume of new business activity. Continuing falls in business activity and employment are obviously not great news but at least the pace of decline eased significantly in the second quarter. Elsewhere last week, my column in The Herald on Wednesday highlighted some very positive news for Scotland. The column focused on research published late last month by Young Company Finance concluding 'Scotland's early-stage investment landscape continues to broaden its international appeal'. YCF's latest Scotland newcomer investors report showed 73 investors new to the Scottish market participating in funding rounds during 2024. Highlighting growing international interest, YCF declared: 'The 73 newcomer investors in 2024 represent the highest number recorded since 2021, demonstrating Scotland's expanding reputation as an attractive investment destination.' And YCF, which confirmed more than half of the 73 newcomer investors in 2024 were from overseas, observed: 'The report, which tracks investors making their first investment in a Scottish company, shows an overall 20% increase from 61 newcomers in 2022.' My column, which highlighted success on the foreign direct investment front as well as the positive news from the YCF report, concluded: 'The numbers are tending to tell a good story when it comes to Scotland. 'They are doing so particularly in relation to Scotland's reputation on the global stage, whether that be in relation to FDI or the attractiveness of the nation's companies to overseas investors, and this hopefully bodes well for the future.' It is important not to lose sight of such important positives in these difficult times.
The Herald Scotland
01-08-2025
- Business
- The Herald Scotland
Why should staff foot bill for NI rise at these companies?
This shows more than 60% of Scottish businesses have adjusted their operations because of the rise in employers' national insurance. Detailing the nature of these adjustments, Fraser of Allander observed that 'many' businesses were 'adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages'. These are grim effects, particularly those actions relating to staff and potential employees. And, when Chancellor Rachel Reeves hiked employers' national insurance contributions in the incoming Labour Government's first Budget on October 30 last year with the aim of raising £25 billion a year, you would imagine this was not the response for which she was hoping. What is more, the huge reaction that has been seen so far from businesses looks to be far from the end of the matter. Fraser of Allander's survey of more than 300 businesses - for the second quarter - found nearly 40% expect to make more adjustments down the road in response to the rise in employers' national insurance. Sanjam Suri, knowledge exchange fellow at Fraser of Allander, said: 'While most businesses have adjusted to changes in NICs (national insurance contributions), nearly 40% of firms plan on making more adjustments, suggesting that the full impact of these changes [is] yet to materialise.' And Fraser of Allander observed: 'Changes to employer national insurance contributions, announced in the autumn 2024 UK Government Budget, kicked in at the beginning of Q2 and have significantly impacted business planning. 'Nearly two-thirds of businesses reported having adjusted their operations, whilst almost two-fifths anticipated requiring additional adjustments in response to the changes that have resulted in higher employee costs for businesses. Such policy changes, combined with ongoing inflationary pressures, continue to contribute to an overall challenging cost environment for Scottish businesses.' Read more Industry body UKHospitality this week flagged increased employers' national insurance contributions as it highlighted figures showing job postings for temporary work in the sector this summer were down 25% year on year, 'threatening student jobs'. It observed: 'There are 22,369 fewer unique postings for jobs in hospitality this year, compared to the same period in 2024, according to new data from the Recruitment and Employment Confederation.' And UKHospitality declared: 'This drastic fall in hiring follows significant changes to employer NICs, most notably the lowering of the threshold announced in last year's Budget, which have resulted in £3.4 billion additional annual cost for hospitality businesses. Since that announcement, 84,000 jobs have been lost in the sector.' There is no doubting the widespread impact of the hike in employers' national insurance contributions. However, it is important to realise the broad range of financial situations in which businesses faced with this hike find themselves. For some businesses, the hike in employers' national insurance represents a genuinely major blow and one that they must react to in order to ensure their continued viability. It is understandable that such businesses might view themselves as having no alternative but to cut back on hiring, or restrict or not award pay rises. Some might even cut jobs, although hopefully they would look at every possible alternative before doing so, such as reducing other costs or raising prices. However, it is also important to realise that some firms which have cut back on hiring, reduced employment, or clamped down on staff remuneration are making big profits. It is surely absolutely reasonable to ask why such businesses cannot simply treat the rise in employers' national insurance contributions as a tax decision that is beyond their control, and absorb this increased cost by shaving a little off what will in some cases be handsome profit margins. Read more In this context, it is worth recalling that the Conservatives' move, after they came to power in 2010, to gift huge cuts in corporation tax to businesses hardly provoked a hiring spree. Business investment was also lamentable, as company bosses kept their hands in their pockets and lapped up the tax break. Surely now that the tax move is occurring in the opposite direction, it might be reasonable to expect those companies which are making good profits not to make their staff or potential employees foot the bill for the rise in national insurance contributions. Especially so given workers did not share in the bonanza when companies were benefiting from those Tory cuts in corporation tax in the wake of the global financial crisis at a time when the population as a whole was being laid low by the Conservatives' austerity. Clearly, passing the increased costs arising from the national insurance hike on to customers is more palatable than companies taking it out on their employees. However, here again, companies should consider whether they need to do this, and indeed whether it is in the long-term interests of the business. The same applies in the context of restricting employee remuneration or cutting workforces to a point where remaining staff are over-burdened. In sectors where there is plenty of staff mobility, companies should remember that employees can vote with their feet. Also, from an economic standpoint, it is lamentable if companies which could afford to do otherwise look to employees' pockets to pay for the rise in national insurance contributions. Household finances are under enough pressure without employees bearing this burden. These are the people who spend their money on the goods and services offered by companies. This is something which on occasion seems to be forgotten by those business leaders with magpie-like eyes on the bottom line, who often take too much of a short-term view and squeeze out too much profit to the long-term detriment of the enterprise.
The Herald Scotland
31-07-2025
- Business
- The Herald Scotland
Scottish businesses flag ongoing effect of major blow
The research institute observed that 'many' were 'adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages'. And Fraser of Allander's survey of more than 300 businesses for the second quarter found nearly 40% expect to make more adjustments down the road in response to the rise in employers' national insurance. However, the research institute noted that 'Scottish businesses are showing tentative signs of recovery, despite tremendous uncertainty in business confidence and economic outlook for the remainder of 2025'. It said: 'Despite business sentiment becoming more pessimistic for the remainder of 2025, the outlook for growth in the Scottish economy over the next year is slowly becoming more optimistic. A total of 73.5% of businesses expect weak or very weak growth compared to last year. However, this is down from 79.3% in the previous quarter, suggesting possible green shoots on the horizon.' Fraser of Allander added: 'Three per cent of businesses expect strong or very strong growth compared to the previous 12 months. This is an increase of 2.2 points from last quarter.' Read more And it observed that 23.5% of businesses now expect moderate growth, up 3.6 points from the first-quarter survey. Fraser of Allander declared the Scottish business community has 'had to deal with a plethora of challenges since the pandemic'. It added: 'While overall business confidence at the end of the second quarter of 2025 remained subdued, there were tentative signs of recovery from the sharp declines observed in Q1 2025. Changes to employer national insurance contributions, announced in the autumn 2024 UK Government Budget, kicked in at the beginning of Q2 and have significantly impacted business planning. 'Nearly two-thirds of businesses reported having adjusted their operations, whilst almost two-fifths anticipated requiring additional adjustments in response to the changes that have resulted in higher employee costs for businesses. Such policy changes, combined with ongoing inflationary pressures, continue to contribute to an overall challenging cost environment for Scottish businesses.' The latest Scottish business monitor found 'cost pressures…remain elevated'. Of businesses surveyed, 83% reported experiencing or expecting higher total business costs over the past three months and in the upcoming six months respectively. Read more Total employee costs, including wages, pensions, and national insurance contributions, remain the most pressing cost component for businesses, Fraser of Allander observed. The research institute added: 'Like last quarter, almost all businesses surveyed highlighted the influence of economic and political uncertainty over traditional economic factors, such as staff or credit availability.' A steeper decline in export activity in the second quarter is signalled by the business monitor. The rate of decline of volume and value of business activity or sales eased in the second quarter, the monitor shows. Employment also fell at a slower pace, as did the volume of new business activity. Sanjam Suri, knowledge exchange fellow at Fraser of Allander, said: 'The results in the second quarter marked a recovery of sorts after a very difficult first quarter. However, it's clear that overall business confidence remains challenged. The tentative signs of recovery have thus far failed to make a dent in the economic outlook for the rest of the year. While most businesses have adjusted to changes in NICs (national insurance contributions), nearly 40% of firms plan on making more adjustments, suggesting that the full impact of these changes [is] yet to materialise." Josh Hampson, knowledge exchange assistant at Fraser of Allander, said: 'The ongoing uncertainty around trade continues to show up in the sharp decline in the export activity from what was already seen as a weak starting point in the first quarter of 2025. Economic policy and political uncertainty are uppermost in the minds of Scottish businesses, even more than traditional factors such as borrowing costs or staff availability.'
The Independent
04-07-2025
- Business
- The Independent
Economic slowdown linked to global uncertainty amid Trump tariffs
A slowdown in growth in Scotland's economy is 'largely due to higher global uncertainty' – with experts saying this is linked 'particularly' to US President Donald Trump's trade tariffs. The Fraser of Allander Institute also highlighted a recent rise in inflation this year as having 'played a role' as the economy 'faltered'. Economics experts at the Strathclyde University-based think tank have now downgraded their forecasts for growth. Speaking as its latest quarterly economic commentary was published, institute director Professor Mairi Spowage said: 'After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago. 'Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.' The think tank now expects economic growth of 0.8% in 2025 and 1.0% in 2026 – which is a slight downgrade from its April forecasts of 0.9% and 1.1%. It noted Scottish real GDP grew 0.4% in the first quarter of 2025, compared to 0.7% in the UK as a whole. The think tank said: 'A pattern of lower growth in Scotland has persisted, leading to a weaker recovery from the pandemic than the UK generally.' Looking at the latest data, it found Scotland's economic growth had 'remained slow', with rises in the first months of 2025 having been 'partially offset' by decreases in March and April. The report said: 'The slowdown in growth this year is largely due to higher global uncertainty, particularly from the announcement of tariffs in the US and elsewhere. 'With the CPI (Consumer Prices Index) rate at 3.4% in May 2025 after staying below 3% throughout 2024, an uptick in inflation has also played a role.' The think tank said its latest forecasts 'reflect greater uncertainty and difficult economic circumstances'. It also noted that businesses had reported a slowdown of activity in the first quarter of 2025 compared to the same period last year. The report said this 'decline in activity may reflect the impact of increases to employer national insurance contributions as well as uncertain conditions, particularly from trade and tariff decisions taken by the US government'. It said the 'difficult conditions for business have been echoed in the labour market', with the think tank noting pay growth has been 'slow' and the number of employees has fallen 0.9% from last year. It also said there was 'some indication that the proportion of people living beyond their means in Scotland may have increased compared to this time last year' – but added other indicators of financial stability 'seem to be holding steady'. Deputy First Minister Kate Forbes said: 'It is clearer than ever that Scotland's economy is being impacted by challenging global trading conditions and uncertainty – conditions mirrored across the rest of the UK. 'We are taking ambitious steps to grow the economy by pursuing new investment, building export potential and driving and capitalising on the Scottish innovation at the forefront of many key global industries. 'But we are doing all of this without the full economic powers needed to fully address the issues facing Scottish businesses. We need decisive action from the UK Government to counter the damaging economic impacts of Brexit and business uncertainty. 'This includes reversing its decision to increase employers' national insurance contributions which, as the Scottish Chambers of Commerce has highlighted, is severely damaging business confidence, investment, growth and jobs.'
The Herald Scotland
04-07-2025
- Business
- The Herald Scotland
Scottish economy growth forecasts cut by think tank
It notes the growth forecasts have been 'revised down to reflect economic conditions in both the UK and the world economy, particularly given the weakening growth that we have seen in March and April'. Fraser of Allander is now forecasting the Scottish economy will grow by 0.8% this year and expand by 1% in 2026. In its previous commentary, published in April, it had predicted growth of 0.9% in 2025 and expansion of 1.1% next year in Scotland. The research institute said: 'Our latest forecasts reflect greater uncertainty and difficult economic circumstances.' It noted other forecasters had increased gross domestic product growth projections for Scotland and the UK next year, while cutting expectations for 2025. Fraser of Allander said of the reductions in its predictions for the Scottish economy for both years: 'This comes despite more upbeat projections from both the Scottish Fiscal Commission and the Office for Budget Responsibility, which have recently upgraded their expectations for 2026 whilst similarly revising down their GDP forecasts for 2025.' The research institute has held its Scottish growth forecast for 2027 at 1.1%. Read more Fraser of Allander noted the Scottish Fiscal Commission in May forecast the economy in Scotland would grow by 1.1% this year, before expanding by 1.8% and 1.7% respectively in 2026 and 2027. The Scottish Fiscal Commission had in December forecast 1.5% growth this year, with expansion of 1.6% and 1.4% respectively in 2026 and 2027. The OBR in March halved its forecast for UK growth in 2025 to 1%, having last October projected expansion of 2% for this year. It raised its prediction of UK growth in 2026 from 1.8% to 1.9% in March, while increasing its forecast of expansion in 2027 from 1.5% to 1.8%. Fraser of Allander said: 'Economic growth is now slowing compared to the start of the year and inflation has also edged up to 3.4%, after staying below 3% throughout 2024. 'The business environment is also showing signs of strain, with companies reporting cutting back on activities in the first quarter compared to last year, plagued by rises in national insurance contributions, which took effect in April, alongside uncertainty surrounding President Trump's trade tariffs. Indeed, pay growth and employee numbers are down, signalling potential weaknesses in the labour market.' Mairi Spowage, director of Fraser of Allander, said: 'After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago. 'Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.' João Sousa, deputy director of Fraser of Allander, said: 'The fiscal announcements by both governments suggest that there are significant economic challenges in the years and months to come for the UK and Scottish governments. 'Particularly from 2027-28 onwards, the choices of government look to become more difficult. Of course, this is the role of the government in power: but the difficulties of the UK Government this week show that events can quickly derail its plans.' Fraser of Allander said: 'Our forecasts demonstrate the continuing challenge for policymakers of combined slow growth and spending pressures. Through the second half of the year, we'll be watching the Scottish and UK budget processes closely to see how policymakers are balancing short-term pressures with long-term considerations.'
