This report summarises the key results from our latest Fraser of Allander (FAI) Scottish Business Monitor, published in partnership with Addleshaw Goddard. As restrictions continue to ease and the economy re-opens in Scotland, the Scottish Business Monitor survey published today (27th July 2021) highlights that business sentiment has continued to improve since the first quarter of 2021

Black, James

Cooper, Ben

Spowage, Mairi

University of Strathclyde Institutional Repository

SCOTTISH BUSINESS MONITORQ2 2021THIS REPORT SUMMARISES THE KEY RESULTS FROM OUR LATEST FRASER OF ALLANDER (FAI) SCOTTISH BUSINESS MONITOR, PUBLISHED IN PARTNERSHIP WITH ADDLESHAW GODDARD.The survey sampled over 500 firms in July from across the Scottish economy.The results examined business sentiment in the second quarter of 2021, and their outlook and expectations through the second half of 2021. Our survey results show that business sentiment continued to improve in the second quarter of 2021. Volume of business, employment and turnover metrics continued to be positive for the second quarter in a row highlighting improved optimism as many restrictions lift across Scotland and the rest of the UK.INTRODUCTION1WE ALSO FOUND THAT: The volume of business over the quarter for accommodation and food services is positive for the first time since Q3 2019 and expectations over the next six months are the most optimistic since Q2 2014.  The proportion of businesses that say their chance of survival over the next six months is somewhat or very high has increased from 82.6% in the final quarter of 2020 to 91.8% in the second quarter of 2021. However, 37.2% of businesses have seen their debt burden increase by a moderate or large amount over the pandemic. Most business continue to report that homeworking has had a negative impact on productivity, but just over 34% of businesses either have or will permanently reduce their office footprint. We asked businesses where they expected their staff, who previously only worked in the office, to work in the long term. Across all businesses, almost 2 in 3 of these staff are expected to work full-time in the workplace, over 1 in 5 staff will work part-time at home and part-time in the office, and around 1 in 10 staff will work from home full time. This marks a significant shift towards a hybrid homeworking model.  Half of responding businesses currently had open vacancies to hire new staff, of which 77% said they were finding it difficult or very difficult to fill.THE EXPERIENCE OF FIRMS• The net number of firms reporting an increase in their volume of business over the past three months was large and positive for the second quarter in a row, representing many firms experiencing growth over the last quarter. • This optimism was also seen in expectations over the next six months for volume of new business and turnover positive.Chart:  Net balance (%) of firms expecting an increase in their volume of business over the next six months, Q1 1998 – Q2 2021KEY RESULTSNET BALANCE OF RESPONSES1998200220001999200120032004200520062007200820092010201120122013201420152016201720182019202020216040200-20-40-60-802Source: Fraser of Allander InstituteSource: Fraser of Allander Institute All sectors now have a positive net balance for the first time since quarter 2 of 2019. The accommodation and food services sector reported the biggest increases with 54% of firms reporting a higher volume of business than the first three months of the year and only 8.3% reporting lower volume.Table: Net balance (%) of firms experiencing an increase in their volume of business over the past three months,  Q2 2020 – Q2 20213KEY RESULTS2020 2021Q2 Q3 Q4 Q1 Q2MANUFACTURING -59 -15 -24 5 45CONSTRUCTION -93 -3 -8 14 55RETAIL & WHOLESALE -62 -26 -33 -11 18TRANSPORT & STORAGE -68 -23 -53 -36 32ACCOMMODATION & FOOD SERVICES-78 -58 -92 -77 46FINANCE & INSURANCE -43 -24 -19 47 23IT &   -32 -6 -38 3 44ADMIN & SUPPORT SERVICES-73 -43 -49 -13 26PROFESSIONAL, SCIENTIFIC AND TECHNICAL-62 -29 -16 15 24Source: Fraser of Allander Institute• Despite encouraging signs of optimism, the pandemic has led to many firms taking on debt.• 42% of businesses reported that their debt burden had increased during the period of the pandemic, of which 43% said it had increased by a large amount, and 46% by a moderate amount. • Comparatively, 12% of reporting businesses said that their debt had decreased during the period of the pandemic, with 1 in 4 business saying that it had decreased by a large amount, and 55% reporting a moderate reduction. Chart:  To what extent has your company’s debt burden increased during the period of the pandemic?4KEY RESULTS% OF RESPONDING BUSINESSES50454035302520151050A LARGE AMOUNTA MODERATE AMOUNTA SMALL AMOUNT Source: Fraser of Allander Institute353025201510501-25% 26-50% 51-75% 76-99% 100% (NORMAL)> 100%Over the coming months: With the easing of lockdown restrictions over the past few months, expected levels of capacity over the next 6 months have improved since Q1 of 2021.  51% of firms now expect to operate at normal or above normal levels of capacity over the next six months. Chart:  What level of capacity, compared to normal levels of operation over this period, do you expect your business will operate at over the next six months? 2021 Q1 2021 Q25KEY RESULTS5111322 2326581217193940% OF RESPONDING BUSINESSESSource: Fraser of Allander Institute6KEY RESULTSThe outlook for the year • The outlook on growth in the Scottish economy has worsened slightly, with only 17% of businesses expecting strong or very strong growth in the coming 12 months, compared to 25% of businesses in the previous quarter. • There have been concerns around the potential for higher levels of inflation of the economy. We asked business how they expected the prices of their goods and services to change over the next 12 months compared to normal.• 70% of businesses expect their prices to increase  more or a lot more than normal, with only 2% of businesses expecting a lower growth in prices over  the next 12 months. Chart:  Over the next 12 months, how do you expect the  prices of your goods and services to change compared to normal?% OF RESPONDING BUSINESSES50.045.040.035.030.025.020.015.010.05.00.0DECREASE A  LOT MORE  THAN NORMALDECREASE MORE NORMALNO CHANGE INCREASE MORE  THAN NORMALINCREASE A  LOT MORE  THAN NORMALOF BUSINESSES REPORTED THAT THEIR DEBT BURDEN HAD INCREASED DURING THE PERIOD OF THE PANDEMICBUSINESSES REPORTED THAT THEY EXPECT TO PERMANENTLY REDUCE  THEIR WORKPLACE FOOTPRINT COMPARED  TO PRE-PANDEMIC LEVELSOF FIRMS NOW EXPECT TO OPERATE AT NORMAL OR ABOVE NORMAL LEVELS OF CAPACITY OVER THE NEXT SIX MONTHSTHE ACCOMMODATION AND FOOD SERVICES SECTOR REPORTED THE BIGGEST INCREASES WITH 54% OF FIRMS REPORTING A HIGHER VOLUME OF BUSINESS THAN THE FIRST THREE MONTHS OF THE YEAROF RESPONDING BUSINESSES ALSO REPORTED THAT LEAVING THE EU HAD NEGATIVELY IMPACTED THEIR ABILITY TO FILL VACANCIES OF BUSINESSES EXPECT THAT AT LEAST SOME OF THEIR WORKFORCE WILL REMAIN WORKING FULL-TIME IN THE WORKPLACE42%1 IN 351% 54%38% 84%STANDOUT FACTS7Source: Fraser of Allander Institute8KEY RESULTSHomeworking More than half of businesses reported that homeworking has not improved their organisations productivity – this continues a trend seen throughout the pandemic. Businesses have also put in a number of provisions to successfully support homeworking in their organisation. IT equipment such as laptops and webcams were the most highly reported provision, with 45% of businesses reporting that these had been implemented to a large extent.  Accommodating caring responsibilities and flexible working hours were also provisions that the highest share of businesses reported to having implemented to some extent also. Chart:  To what extent have you, or do you plan to, put the following in place to support effective home working in your organisation in line with your company values or culture?% OF RESPONDING BUSINESSES9080706050403020100LARGE  EXTENTSOME  EXTENTSMALL  EXTENTNO  EXTENTIT EQUIPMENT FOR STAFFDIGITAL STAFF INDUCTION PROCESSESSTAFF SURVEYS AND ENGAGEMENTSTAFF WELLBEING SUPPORTFLEXIBLE WORKING HOURSACCOMMODATING FOR CARINGSOCIAL EVENTSDIGITAL TRAINING100Source: Fraser of Allander Institute9KEY RESULTS•  1 in 3 businesses reported that they expect to permanently reduce their workplace footprint compared to pre-pandemic levels.• Given this large scale change in the workplace, we asked businesses where they expected their staff who previously only worked in the workplace to work in the long term.   • Almost 2 in every 3 businesses are expecting a hybrid model of working for some of their staff in the long term, with staff working part-time at home and part-time in work.• Just under 1 in every 3 businesses are expecting that some of their staff will work full-time from home in the long term.•  84% of businesses expect that at least some of their workforce will remain working full-time in the workplace.• But how could this affect businesses in aggregate? Across all businesses, almost 2 in 3 of staff who previously only worked in the workplace are expected to continue. While over 1 in 5 staff are expected to work part-time at home and part-time in the office, and around 1 in 10 staff will work from home full time. This marks a significant shift towards a hybrid homeworking modelChart:  Of staff that only worked in the workplace before the pandemic, what proportion do you expect to work in the office and from home in the long-term?% OF RESPONDING BUSINESSES80%70%60%50%40%30%20%10%0%WORK FROM HOME FULL TIMEWORK FROM HOME PART TIME, WORK IN THE WORKPLACE PART TIMEWORK FULL TIME IN THE WORKPLACE9%23%67%Source: Fraser of Allander Institute10KEY RESULTSVacancies  Half of responding businesses currently had open vacancies to hire new staff, of which 77% said they were finding it difficult or very difficult to fill.   The majority of businesses said that either lack of skills or experience, or lack of applications was the main reason for finding it difficult to fill current vacancies.  Less than 10% of businesses reported that office restrictions and remote workingChart:  What factors have made it difficult to fill vacancies? % OF RESPONDING BUSINESSES80%70%60%50%40%30%20%10%0%LACK OF REQUIRED SKILLS OR EXPERIENCELACK OF APPLICATIONSWAGE EXPECTATIONSOFFICE RESTRICTIONS AND REMOTE WORKINGEXPECTATIONS AROUND FLEXIBLE WORKINGSource: Fraser of Allander Institute11KEY RESULTSThe end of the UK’s transition period with the EU• Of the firms that trade with the EU, 70% reported that they were experiencing negative impacts of their EU trade since the end of the transition period, with only 2% reporting positive impacts. • 38% of responding businesses also reported that leaving the EU had negatively impacted their ability to fill vacancies; with the majority (60%) reporting that Brexit had no impact on their ability to fill vacancies. • Accommodation & food services was the sector reporting the most difficulty in filling vacancies due to Brexit, with 60% reporting negative impacts. This was followed by IT & Communications (46%) and Professional, Scientific and Technical (43%).  Chart:  As a result of leaving the EU, are you experiencing any positive or negative impacts on your ability to fill vacancies? % OF RESPONDING BUSINESSES70%60%50%40%30%20%10%0%TRANSPORT & STORAGEADMIN & SUPPORT SERVICESWHOLESALE & RETAILPROFESSIONAL, SCIENTIFIC AND TECHFINANCE & INSURANCECONSTRUCTIONMANUFACTURINGIT & COMMSACCOMMODATION & FOOD SERVICESNEGATIVE POSITIVEPROBLEMS. POSSIBILITIES.COMPLEXITY. CLARITY.OBSTACLES. OPPORTUNITIES.THE DIFFERENCE IS IMAGINATION.addleshawgoddard.com© Addleshaw Goddard LLP. This document is for general information only and is correct as at the publication date. It is not legal advice, and Addleshaw Goddard assumes no duty of care or liability to any party in respect of its content. Addleshaw Goddard is an international legal practice carried on by Addleshaw Goddard LLP and its affiliated undertakings – please refer to the Legal Notices section of our website for country-specific regulatory information. For further information, including about how we process your personal data, please consult our website www.addleshawgoddard.com or www.aglaw.com. ADD.GOD.895.21

Scottish Business Monitor : 2021 Q2

The survey sampled 500 firms in October from across the Scottish economy. The survey examined business sentiment in the third quarter of 2021 and the outlook and expectations through the remainder of 2021 and the beginning of 2022. Our survey results show that business sentiment remained positive in the third quarter of 2021, with all indicators except export activity remaining optimistic for the third consecutive quarter

MORE IMAGINATION MORE IMPACTSCOTTISH BUSINESS MONITORQ3 20212THIS REPORT SUMMARISES THE  KEY RESULTS FROM OUR LATEST FRASER OF ALLANDER (FAI)  SCOTTISH BUSINESS MONITOR, PUBLISHED IN PARTNERSHIP WITH ADDLESHAW GODDARD.The survey sampled 500 firms in October from across the Scottish economy.The survey examined business sentiment in the third quarter of 2021 and the outlook and expectations through the remainder of 2021 and the beginning of 2022. Our survey results show that business sentiment remained positive in the third quarter of 2021, with all indicators except export activity remaining optimistic for the third consecutive quarter. INTRODUCTIONWE ALSO FOUND THAT:• All sectors reported growth in sales over the quarter, for the second quarter in a row. • 44% of responding businesses said that their debt burden had increased during the pandemic, of which 1 in 3 businesses reported that it had increased by a large amount. • In the coming six months, the highest share of businesses reported that total employee costs (i.e., wages, pensions, and national insurance) were the key cost drivers for their businesses. • 1 in 4 businesses expects to reduce their operations due to increases in electricity and gas prices. • 59% of businesses currently had vacancies to hire new staff in their business, of which 86% were finding them difficult or very difficult to fill. • The majority of responding businesses had either committed to achieving  net-zero (56%) or had already attained their net-zero targets (3%). • More than half of businesses (51%) reported that high costs made the transition to a more sustainable business difficult. • 43% of businesses state that prioritising their recovery from the pandemic makes the transition to a more sustainable business difficult. 3OVER THE COMING MONTHS• We asked businesses about the ongoing opportunities and challenges they face within the Scottish economy.• Firms were asked whether their operations were likely to be affected by increasing energy prices. • As many as one in four businesses expect to reduce their operations due to higher energy prices. However, the majority of firms reported that the reduction would be to a small or moderate extent.Chart: To what extent do you expect to reduce operations this year due to increases in gas and electricity prices?KEY RESULTS01020304050607080% of responding businessesNo extent Small extent Some extent Large extent*5% of businesses responded N/A; therefore, percentages won’t sum to 100%Source: Fraser of Allander Institute4• The concerns around the potential for higher inflation levels of the economy have also persisted, with most businesses anticipating higher prices of goods and services in the next 12 months. • 84% of responding businesses expected prices to increase more than normal in the coming 12 months. Only 1% of firms anticipated a decrease in the price of their goods and services. Chart: Over the next 12 months, how do you expect the  prices of your goods and services to change compared to normal?KEY RESULTS010203040506070% of responding businessesDecrease a lot more than normalIncrease more than normalNo changeDecrease more than normalIncrease a lot more than normalSource: Fraser of Allander Institute5NET ZERO AMBITIONS• The majority of businesses were committed to achieving net-zero. 21% of businesses had committed to achieving net-zero by 2030, and 32% were committed but had not yet set a target deadline• 3% of businesses had already reached their net-zero targets, with a further 3% committed to achieving net-zero beyond 2030. • 42% of responding businesses had not set any net-zero targets. • The most common sustainable initiative many businesses are currently undertaking is adopting sustainable practices such as recycling and reducing single-use plastics (78%). • Educating senior management on sustainability (47%) and using sustainable materials (46%) were also popular initiatives implemented by businesses. • Requiring suppliers to meet sustainable objectives (42%) and decarbonising energy supply (42%) were also two initiatives many businesses considered. • The least common measure being implemented by firms was hiring staff to prioritise sustainability, with only 8% currently undertaking this initiative and 17% considering it. KEY RESULTSSource: Fraser of Allander Institute6Chart: Which of these sustainable initiatives is your business currently undertaking or considering? KEY RESULTS0%10%20%30%40%50%60%70%80%90%% of responding businessesHiring staff to prioritise sustainabilityTracking business ESG performanceRequiring suppliers to meet sustainable objectivesEncouraging sustainable transport for commuting or business travelUsing sustainable materialsEducating senior managementSustainable office practicesDecarbonising energy supplyCurrently undertaking ConsideringSource: Fraser of Allander Institute7• We asked firms what factors are making a transition to becoming a more sustainable business difficult. • More than half of responding businesses (57%) said that the high costs associated with becoming more sustainable was a barrier, with 49% of businesses reporting that prioritising their recovery from Covid-19 was making the transition more difficult. • 1 in 3 businesses also reported that lack of information and government funding made it difficult to transition to a more sustainable business. Chart: Which factors, if any, are making the transition to a more sustainable business more difficult? KEY RESULTS010203040506070% of responding businessesNot a priority for businessLack of fundingLack of informationLack of government fundingPrioritising Covid-19 recoveryHigh costsSource: Fraser of Allander Institute8THE EXPERIENCE OF FIRMS• The net number of firms reporting an increase in their volume of business over the past three months continued to be large and positive for the third quarter in a row.• Expectations for the coming six months was also positive. However, the net balance of firms expecting a higher volume of business had fallen slightly on the previous quarter. Chart: Net balance (%) of firms expecting an increase in their volume of business over the next six months, Q1 1998 – Q3 2021 KEY RESULTSNet balance of responses-60-80-40-200204060199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021Source: Fraser of Allander Institute9• All sectors continued to report a positive net balance for the second quarter in a row. • The highest share of businesses in IT & Communications reported higher volumes of business in the past six months (57%). However, 29% of firms also reported lower volumes of business. • The Admin & Support Services sector had the lowest net balance for the volume of business in the past three months. 37% of responding firms in the sector reported higher volumes of business, with 30% reporting lower levels. Table: Net balance (%) of firms experiencing an increase in their volume of business over the past three months, Q2 2020 – Q3 2021.KEY RESULTS2020 2021Q3 Q4 Q1 Q2 Q3MANUFACTURING -15 -24 5 45 36CONSTRUCTION -3 -8 14 55 40RETAIL & WHOLESALE -26 -33 -11 18 17TRANSPORT & STORAGE -23 -53 -36 32 15ACCOMMODATION & FOOD SERVICES -58 -92 -77 46 31FINANCE & INSURANCE -24 -19 47 23 33IT & COMMS -6 -38 3 44 29ADMIN & SUPPORT SERVICES -43 -49 -13 26 7PROFESSIONAL, SCIENTIFIC AND TECHNICAL -29 -16 15 24 32Source: Fraser of Allander Institute10• The outlook on growth in the Scottish economy has worsened in the latest quarter, with only 1 in 10 businesses expecting strong or very strong growth in the coming 12 months compared to 17% in the previous quarter. • Half of responding businesses expected moderate growth in the coming 12 months. The share of firms expecting weak and very weak growth also increased, from 33% in quarter 2 to 40% for the latest quarter. THE OUTLOOK FOR THE YEAR VACANCIES• Around 60% of businesses currently had vacancies for new staff, a 9% increase on the previous quarter. • The vast majority of these responding businesses said that they were finding it difficult or very difficult to fill vacancies (86%). • The most common factor making it difficult to fill vacancies continued to be a lack of required skills or experience (34%), followed by a lack of applications (26%). • 1 in 5 businesses also reported that wage expectations were making it difficult to fill vacancies. As well as this, 68% of businesses said that wages were higher in quarter three compared to the previous three months. • The end of September also marked the end of the Government’s Job Retention Scheme. • Only 4% of responding businesses were currently, or were expecting to, make redundancies due to the end of the Job Retention Scheme. Source: Fraser of Allander Institute11Chart: If you currently have vacancies to hire new staff, how easy or difficult are you finding it to fill these vacancies?THE OUTLOOK FOR THE YEAR 0102030405060% of responding businessesVery easy Easy Neither easy nor difficultDifficult Very difficultSource: Fraser of Allander InstitutePROBLEMS. POSSIBILITIES.COMPLEXITY. CLARITY.OBSTACLES. OPPORTUNITIES.THE DIFFERENCE IS IMAGINATION.addleshawgoddard.com© Addleshaw Goddard LLP. This document is for general information only and is correct as at the publication date. It is not legal advice, and Addleshaw Goddard assumes no duty of care or liability to any party in respect of its content. Addleshaw Goddard is an international legal practice carried on by Addleshaw Goddard LLP and its affiliated undertakings – please refer to the Legal Notices section of our website for country-specific regulatory information. For further information, including about how we process your personal data, please consult our website www.addleshawgoddard.com or www.aglaw.com. ADD.GOD.932.21

Scottish Business Monitor : 2021 Q3

https://strathprints.strath.ac.uk/78039/1/FAI_2021_Q2_Scottish_Business_Monitor.pdf

Scottish Business Monitor : 2021 Q2

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