Tentative signs of improvement, but a challenging overall outlook is the picture presented by a major survey of Scottish companies as the country emerges from the COVID-19 lockdown.

The Addleshaw Goddard Scottish Business Monitor, produced in partnership with the Fraser of Allander Institute, indicates that while the volume of overall business activity anticipated for the next six months is expected to recover "significantly", it will remain below pre-lockdown levels.

Overall, sentiment around operational capacity, day-to-day activity, employment and debt levels, is expected to depend largely on a combination of how the virus is contained over the coming months and how Scottish policy reacts.

The detailed results, drawn from over 500 Scottish-based businesses surveyed between 30 June and 14 July, indicate:

  • When compared to normal levels for the next six months, the average firm expects to operate at 51-75% capacity, though one in four expects to operate at normal or above normal capacity.
  • Business activity is expected to rise from a record low, with a net balance of 70% of firms reporting a decrease in the first quarter of 2020, to 4% predicted for the next six months.
  • The balance of sentiment around employment and capital investment  remains negative, though expectations for employment over the next six months improve from -57% to -21%, and for capital investment from -68% to -21%.
  • The majority of firms say they plan to make redundancies once the furlough support comes to an end. Of those who used the scheme, 12% expect a large decrease in employees and 43% a small decrease, while 41% say they expect no change. 
  • 61% of businesses said that their cash flow position was secure or very secure for the next six months – leaving a significant proportion of firms at risk.
  • Many businesses have significantly increased their debt to get through the lockdown period, with 47% of firms saying their burden has increased as a result of the pandemic. Of these, 41% have seen a large increase in this burden, 46% a moderate rise and 13% a small one.

Graeme Roy, director of the Fraser of Allander Institute, commented:

"As we continue to emerge from the public health crisis, the economic costs of the lockdown are becoming ever clearer. This summer’s activity figures were the lowest since the survey began in 1998. And whilst we find a marked improvement in business sentiment for the next six months, the finds are highly polarised, with just as many firms expecting a further fall in activity as those expecting an increase.

"Around half of all firms in the survey intend to only operate at less than 75% of normal capacity over the next six months. As a result, and as the Government Job Retention Scheme (JRS) comes to an end, a similar proportion of firms – around 50% – who have used the JRS are planning to decrease staffing levels.

"In short, whilst the economic recovery has clearly started, it will be a long road ahead."

David Kirchin, head of Scotland at Addleshaw Goddard, said:

"There is no doubt the economic outlook for the foreseeable future looks testing and, while activity levels are now improving, they remain challenged.

"However, there is encouragement to be found in the survey data. Nearly half of companies say they expect no change to their workforces and 61% of companies described their cashflow position as secure or very secure for the next six months. The survey also confirms that companies have been able to access debt. For others, our recent experience tells us that potential investors have a healthy appetite to seek out opportunities with innovative businesses, as companies have been able to obtain new equity capital in these last few months, whether by a private raise or by turning to the public markets."