Confidence amongst Scottish businesses is expected to hold steady for the next six months, with many firms in a “wait-and-see” mode as they look to the upcoming budgets for clarity on the economic direction of both Scotland and the UK.

That’s according to the latest Scottish Business Monitor, a survey of over 350 firms conducted in August and September, produced by the Fraser of Allander Institute at the University of Strathclyde.

The findings revealed that while challenges remain, business sentiment in Q3 2024 remained cautiously optimistic.

Many firms report an increase in hiring and a reduction in the cost of running their businesses, helped by easing inflation rates and expectations of further rate cuts to come.

However, the report also highlighted ongoing concerns regarding exports, investment, and rising employee costs – the latter of which may become more pressing as businesses face potential National Insurance hikes reportedly being considered by the UK Chancellor.

As businesses brace for the upcoming UK and Scottish government budgets, 85% of firms said that economic uncertainty is a major concern, while 75% viewed political uncertainty as a significant factor.

Staff availability is also a major worry, with 78% of businesses reporting it as a critical issue for the next quarter.

João Sousa, Deputy Director of the Institute, said: “Scottish businesses are showing cautious sense of hope as they face today’s challenges.

“Drops in costs and interest rate cuts are good news, but there’s still a lot of uncertainty about the upcoming budgets from the UK and Scottish governments. Many companies are in a ‘wait-and-see’ mindset, looking for clear guidance on what to expect over the next year.

“Scottish firms told us that political uncertainty is still top of mind, and it’s no surprise given some of the more pessimistic messaging from the UK Government on short-term growth prospects and tax rises. But there is underlying optimism, and a clearer sense of direction and purpose in the coming Budget might be able to harness that. Will business get that? We’ll know better on the 30th of October.”

Looking ahead, one in four Scottish businesses expect moderate growth in the Scottish economy over the next 12 months, but confidence in strong growth remains limited. Only 4% of firms expect strong economic growth, while many still expect the economy to perform below par.