Scottish businesses see little opportunity to increase turnover and profitability over the next 12 months and fear the economic outlook is worsening, according to a new survey of over 500 firms. Nearly six in ten reported being more concerned with inflation (59%) than they were three months ago, the highest since September 2023 and up eleven percentage points since December 2024. And the prospect of the US government introducing wider tariffs has alarmed many with 60% saying they would hurt the Scottish economy.
The results of the survey come as the US announced 25% tariffs on car imports and after the Office for Budget Responsibility (OBR) warned the Chancellor Rachel Reeves ahead of her Spring Statement about the potential impact of UK and global uncertainty on her economic plans.
Understanding Business is an independent quarterly survey of over 500 businesses of all sizes from all over Scotland produced by the research specialists Diffley Partnership and public affairs and communications consultancy 56° North.
The latest survey shows confidence among Scottish businesses is weakening. Only 37% of firms anticipate their turnover will grow over the next year, a significant seven point drop from the previous wave, while just 32% expect their profitability to increase, down six points.
Meanwhile, nearly one in five (18%) predict their turnover will shrink, up four points. These figures signal mounting financial strain and a more cautious outlook as businesses brace for tougher times.
Worries over economic outlook
The majority (51%) of businesses think that general economic conditions have worsened in the last 12 months, up three percentage points since December. Looking ahead, confidence is decreasing with nearly half of Scottish businesses (48%) expecting economic conditions to worsen over the next 12 months, marking a six percentage point increase from the previous wave and the highest figure since the first Understanding Business survey in June 2023 (49%).
Only a quarter (25%) expect conditions to get better, down four percentage points.
Inflation is becoming an issue again with 59% reporting being more concerned with inflation than they were three months ago, up 11 points from the last survey and the highest since September 2023 and as well as 60% saying they are worried potential US tariffs could hurt the Scottish economy, 34% say they would negatively impact businesses such as their own.
SNP best party for business but lead over Scottish Labour narrows
The survey also found that SNP is seen as the party which best represents the interests of Scottish business (28%), but its lead is narrowing. Labour follows at 26%, with the Conservatives trailing at 15%. Meanwhile, nearly one in ten businesses (9%) selected Reform UK.
When it comes to policies for growth and investment, the SNP also leads (29%), but Labour’s support has slipped by seven points to 24%, suggesting that business has grown more cautious over Labour’s approach since they took the reins at Westminster.
John Penman, Managing Partner at 56° North said: “This survey suggests many Scottish businesses agree with the OBR’s concerns that the economy at the moment is quite fragile. Many businesses are pessimistic about the immediate outlook and that’s before the impact of the extra costs coming down the track from things like the National Insurance changes.
“Last year there was a small but regular increase in optimism which seems to have gone as a result of a toxic combination of worries over the global economy, potential trade wars and rising inflation.”
Scott Edgar, Senior Research Manager at Diffley Partnership said: “The latest Understanding Business survey offers a stark reflection of the growing uncertainty facing Scottish businesses in 2025. Confidence in the year ahead has fallen sharply, with more firms now expecting economic conditions to deteriorate. This rising pessimism is accompanied by weakening financial expectations, as fewer businesses anticipate growth in turnover or profitability. The mounting pressures, from rising costs to ongoing trade challenges, are forcing many to brace for tougher times.”
