Economic Challenges Impacting Business Confidence
A new report from the Fraser of Allander Institute at the University of Strathclyde highlights growing concerns among Scottish businesses about the economic outlook for 2025. The latest Scottish Business Monitor, based on a survey of over 300 firms conducted between December 2024 and January 2025, reveals that companies are grappling with multiple challenges.
Despite a decline in overall inflation, more than 80% of businesses reported increased operating costs in the last quarter of 2024. While borrowing costs have slightly eased, only 13% of firms indicated a rise in capital investment, which raises concerns about long-term productivity. Businesses are also navigating recent policy changes introduced in both the UK and Scottish Government Budgets, which are expected to have a significant impact on their operations.
Effects of Policy Changes on Business Operations
One of the major concerns for businesses is the recent adjustment in employer National Insurance Contributions. Nearly 70% of firms believe these changes will have a considerable effect on their operations in 2025. Additionally, three-quarters of businesses surveyed predict that Scotland’s economic growth will remain weak or very weak throughout the year.
The survey results emphasize a strong need for economic stability, with nine out of ten businesses citing uncertainty as their primary concern for the first quarter of 2025. The Fraser of Allander Institute’s latest economic review also highlighted sluggish economic performance at the end of 2024 and suggested that government policy decisions will continue to influence growth through 2026.
Other key insights from the survey indicate that nearly 80% of businesses experienced higher employee costs in the last quarter of 2024. More critically, nine in ten businesses expect these costs to persist in the first half of 2025. While companies are still evaluating how to adjust to National Insurance Contribution changes, close to three-quarters foresee a significant impact on their operations in the coming months.
Business Sentiment and Outlook for 2025
Sanjam Suri, Knowledge Exchange Fellow at the Fraser of Allander Institute, commented on the findings, noting that businesses had shown cautious optimism in mid-2024. However, the combination of an economic slowdown and policy adjustments—particularly changes to employer National Insurance Contributions—has raised concerns as companies enter 2025.
“Businesses will respond to these NIC changes in various ways, and their impact will become clearer as the year unfolds. We will continue monitoring business sentiment throughout 2025 to assess how these shifts influence economic conditions,” Suri stated.
As companies adapt to the evolving economic landscape, many remain focused on navigating financial pressures while seeking greater stability in policy decisions. The coming months will be crucial in determining how these factors shape the Scottish Business environment in 2025 and beyond.
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