Scotland’s Central Belt is experiencing above-average levels of research and innovation and business investment compared with the UK, with high levels of investment also seen across the Highlands, according to research from KPMG.

The research shows the west of Scotland is also experiencing above-average productivity growth compared with the UK, and that Dundee, Angus, East Ayrshire, and the Borders are experiencing the fastest rates of new business creation in Scotland.

A new quarterly economic study from KPMG UK and the University of Nottingham shows that 37% of local areas across Scotland have been identified as High Investment Areas – places which share “an expected high rate of growth” in business investment.

In comparison, 22% of places across the UK were considered High Investment Areas.

The data comes from the new quarterly Local Business Pulse Index (LBPI), which uses AI technologies to pinpoint what is influencing economic activity across the UK’s regions and devolved nations by using seven clusters to characterise potential growth.

The aim is for businesses and local government leaders to use the LBPI to prioritise what type of investment is needed and where it should go.

The live tool will be updated each quarter presenting a current and forward-looking view across each area.

Using AI technology, the seven clusters have been derived from the geographic, sub-national data covering businesses, employees, and consumers.

These clusters include: Business Creation, Sales Growth, High Investment, Employment Growth, Research and Development, Consumption Growth and High Productivity.

James Kergon, Scotland Senior Partner at KPMG UK, said: “The new index gives us a wide perspective on the indicators and traits of the post-pandemic economy across Scotland.

“It presents a complementary and critically objective analysis for local leaders, investors, and businesses in Scotland. Providing real-time insights like this can assist in directing investments and strategic decisions based on up-to-date data.

“The index also allows for comparisons between local areas in Scotland, determining whether goals are being achieved, and identifying crucial gaps.

“For example, while business creation may be driving growth in certain regions of Scotland, it may also indicate the need for more efforts to foster research and innovation.

“The LBPI is a valuable tool that will facilitate targeted interventions and support, enabling each place to tailor its strategies around its unique strengths and defining characteristics.”

KPMG added: “The leading growth centres for research and innovation are spread across the regions with Birmingham, Bristol, Edinburgh, Glasgow, Leeds, and Manchester showing highest rates of growth in research and development spending and venture capital investment.

“New business creation is strongest across the devolved nations and regions with Wales, Northern England and Scotland, East Anglia and the North East experiencing the fastest rates of new business creation.

“Dundee, Angus, East Ayrshire, and Borders are experiencing the fastest rates of new business creation in Scotland.

“Investment in digital and remote working technologies is benefiting the Midlands and northern cities, with firms in these areas reporting high rates of investment in new technology, and faster adaption to working from home. Highlands, North Ayrshire, Inverclyde and Clackmannanshire all score highly.”

Out of the 32 areas in Scotland, the LBPI reveals the following cluster breakdown:

• 37% of areas are in the High Investment cluster, with high expectations of growth in business investment, and firms facilitating flexible working with new digital infrastructure. These include the Highlands and North Ayrshire.
• 22% of areas are in the Business Creation cluster, with the highest start-up rates, combined with high expectations on investment growth. These include Dundee and the Borders.
• 16% of areas are in the Consumption Growth cluster, with high household credit scores, supporting the local consumer and leisure-focused economy. These include Aberdeen and Orkney.
• 19% of areas are in the High Productivity cluster, with leading productivity hotspots with the highest rates of hybrid working. These include Stirling and Midlothian.
• 6% of areas are in the Research and Innovation cluster, with the strongest growth in venture capital investment and R&D expenditure. These includeEdinburgh and Glasgow.

Karl P Edge, Head of KPMG Private Enterprise in the UK, said: “As the economy continues through a challenging period, there’s growing emphasis on local authorities to define their economic strategies and leverage profile of their business community.

“That’s why we’ve created the Local Business Pulse Index to help pinpoint the growth opportunities across England, Scotland, and Wales. From the data, we can see there are distinct hubs for job creation, use of technology when working remotely, and investment.

“While we’ve experienced significant economic challenges over the past few years, it’s encouraging to see high investment levels come out on top, reassurance that growth and confidence are headed in the right direction for local areas.

“The need to understand local economies is crucial in prioritising investment and informing wider policy and with this tool, we can start to map out where our priorities should lie.”

Professor John Gathergood, at the University of Nottingham School of Economics, said: “We are delighted to bring together the latest economic data, together with artificial intelligence technologies, to create this exciting new product with KPMG. It will support businesses and governments to help make better decisions about localities across Great Britain.”