Scottish Business Sentiment Index

1 Introduction

Understanding business sentiment is crucial for policymakers, investors, and economic analysts seeking to gauge economic conditions and anticipate future trends. Traditional sentiment measures, such as consumer confidence indices, rely on sample surveys that can be limited in scope The Business Sentiment Index (BSI) offers a complementary approach by leveraging real-time textual analysis of business news articles to assess prevailing economic conditions in a cost-effective manner.

The increasing adoption of sentiment analysis in economic research reflects its growing recognition as a powerful tool for tracking business and market trends. Studies have shown that news-based sentiment indices can effectively capture economic fluctuations and provide early insights into business behaviour (Lee et al., 2020; Yang et al., 2022). In particular, machine learning-based approaches have enhanced the accuracy and scalability of sentiment analysis, allowing for more precise measurement of news sentiment (Shapiro, Sudhof, and Wilson, 2022). Additionally, Seki, Ikuta, and Matsubayashi (2022) highlight the importance of real-time sentiment tracking as a valuable indicator of business confidence, reinforcing the relevance of the BSI’s methodology in economic analysis.

The new BSI for Scotland is constructed using Factiva, a global news database, which provides access to business-related articles from leading national and regional newspapers. Articles categorised under “Corporate/Industrial News” and tagged as relevant to Scotland are analysed by applying machine learning and linguistic analysis techniques to generate sentiment scores. These scores are aggregated into a monthly index that reflects fluctuations in business sentiment over time.

This document outlines the methodology used to construct the BSI along with the underlying data, including the application of sentiment analysis techniques and machine learning models to extract meaningful insights. The validation process compares the BSI with key economic indicators to assess its reliability and predictive power. Additionally, the report discusses how the BSI reacts to significant economic events and explores potential improvements that could enhance its utility.

By providing a real-time measure of business sentiment, the BSI offers a valuable tool for policymakers and business leaders to monitor economic trends, identify risks, and inform decision-making processes.