Scottish Chambers of Commerce has urged the Scottish and UK governments to improve investment conditions after its latest research showed business confidence weakening into the second half of 2026.
The organisation, which represents more than 12,000 companies and more than half of Scotland’s private sector workforce, said 40% of businesses reported a fall in confidence during the quarter, compared with 25% reporting an increase.
Inflation has overtaken taxation as the leading concern for companies, with 69% citing it as a worry against 57% for taxation. Investment remains subdued, with around half of respondents reporting no change to investment levels and all investment measures recording negative net balances.
Recruitment problems have also intensified. More than half of companies, at 53%, reported challenges hiring staff, while labour costs affected 75% and fuel costs rose sharply to 65%, one of the largest increases recorded in recent years. Three-quarters of businesses expect to raise prices over the next three months.
The Chambers said the findings reinforce the case for a Competitiveness Test at the centre of policymaking, so future decisions are judged against whether they help or hinder investment and growth. The call comes as a new Prime Minister prepares to enter Downing Street and the Scottish Government reviews Non-Domestic Rates.
Doug Smith, vice-president of the Scottish Chambers of Commerce and chair of the Scottish Economic Advisory Group, said: “Entering the second half of the year, firms are taking a ‘wait-and-see’ approach. Confidence has weakened, investment remains subdued, and recruitment challenges continue to grow. Until businesses see meaningful action that unlocks investment, it is difficult to see confidence recovering.
“Perhaps the defining feature of this quarter’s survey is that businesses are protecting today’s operations at the expense of tomorrow’s growth. That cautious approach may help firms weather current pressures, but it also places a hard ceiling on Scotland’s growth potential.
“The persistence of these pressures is forcing difficult decisions across the country. Three quarters of respondents expect to increase prices in the coming months because absorbing further costs is no longer sustainable. That has implications well beyond individual firms, affecting household budgets, supply chains and wider economic confidence.
“The encouraging aspect is that many of these pressures can be influenced through domestic policy. Decisions that improve competitiveness, reduce the cost of doing business and give firms a greater degree of certainty would help unlock investment and support growth across the economy.”
Charandeep Singh BEM, chief executive of the Scottish Chambers of Commerce, said: “The first half of 2026 has been challenging for Scotland’s businesses. While many of those challenges originate beyond the control of Holyrood and Westminster, recent developments in both governments present genuine opportunities to improve the conditions for investment and growth. Our members across Scotland would urge ministers to seize them.
“Cost pressures are reshaping day-to-day operations across Scotland, making investment decisions harder and holding back opportunities for expansion. Policymakers must take the initiative and introduce a Competitiveness Test at the heart of decision-making. Every major economic decision should be judged against one simple question: will it make it easier or harder for businesses to invest, hire and grow?
“Every step that makes it easier to do business, reduces unnecessary costs, and gives businesses greater certainty, will pay dividends for years to come.”
The Scottish findings sit within a broader UK picture of cautious growth. The IMF’s latest UK growth upgrade offered a slightly firmer macroeconomic backdrop, while companies continue to manage weak confidence, inflation pressure, and global volatility.
A modestly improved GDP outlook does not automatically translate into stronger investment if companies are facing higher wage bills, uncertain demand, rising fuel costs, and difficulty recruiting. Confidence can remain weak even when headline forecasts improve, particularly where day to day costs are still rising faster than margins.
The investment signal is the most concerning part of the survey. Companies can survive a period of pressure by delaying spending, reducing discretionary projects, and avoiding long-term commitments. Over time, subdued investment affects productivity, hiring, technology adoption, premises upgrades, energy efficiency, and competitiveness.
Recruitment difficulty adds another constraint. If businesses cannot find the staff they need, they may be forced to turn away work, delay expansion, increase wages, or accelerate automation. That compounds inflation pressure and can make pricing decisions harder, especially in sectors where customers are already cost sensitive.
The Chambers’ call for a Competitiveness Test reflects wider frustration with fragmented policymaking. Business rates, planning, skills, infrastructure, taxation, regulation, energy costs, and public procurement all shape investment decisions. Companies will judge policy less by its intent than by whether it reduces friction and improves confidence to commit capital.
Scotland’s resilience remains visible, but the survey suggests it is being maintained by caution rather than momentum. The next phase will depend on whether policy changes give companies enough certainty to move from defensive planning back towards investment, hiring, and growth.
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