Mixed picture for Scotland with confidence still fragile

By Peter Ranscombe
Published on Monday 10 October 2011 00:22

STORM clouds are gathering for Scotland’s private sector economy, with a rash of surveys published this morning reporting a drop in business confidence and a fall in orders for the key services sector.

Business intake in the giant services industry – which ranges from accountancy and legal firms through to hotels and tour operators – fell for the first time in nine months during September, sparking a second month of jobs being shed.

The drop in orders triggered a fall in the Bank of Scotland’s purchasing managers’ index (PMI) to 51.9 from 52.7 in August. Readings above 50 indicate growth.

However, while the services industry noted a contraction in orders, the manufacturing sector continued to grow its business intake and also posted a rise in jobs.

Donald MacRae, chief economist at Bank of Scotland, said: “Private sector activity in the Scottish economy increased for the ninth month running in September. However, the month-on-month growth was the slowest since the start of the year.

“This month’s PMI suggests the Scottish economy continues to grow but is slowing, in common with the rest of Europe.”

His comments came as a flurry of surveys from across the private sector painted a bleak picture of business confidence.

Fewer than one in five Scottish construction firms are confident about the outlook for their business in the coming three months, compared with nearly one-third in the previous quarter, according to a survey of 700 companies by the Scottish Building Federation (SBF).

Michael Levack, chief executive of the SBF, said that weak confidence and emptying order books were hampering firms’ ability to recruit and retain apprentices. He called on the Scottish Government to take apprentices into account when choosing which firms should win public sector contracts.

Meanwhile, a monthly survey by accountancy firm BDO warned that business confidence for the UK as a whole is at a low point not seen since the end of the recession, with both the manufacturing and services sectors predicting the economy will contract.

Neil Craig, a partner in BDO’s Glasgow office, warned: “Businesses’ hiring intentions point to more job losses ahead, which, coupled with tumbling optimism and output, indicates tough times in early 2012.”

The gloomy mood was darkened by a report from rival firm Deloitte, which claimed that confidence among chief financial officers has fallen for the third consecutive quarter to its lowest level since 2009, triggered by the “dire economic performance” in the eurozone.

Deloitte said companies that do most of their business within the UK see cost-cutting and improving cashflow as the priorities for the next year. Exporters are in a more expansive mode, with 59 per cent reporting that pushing into new markets or increasing products and services was their priority.

That focus on exports was also borne out in a separate study by office space provider Regus, which suggested that business confidence was higher among exporters than companies that solely deal with the UK market.

Regus also found that Scottish businesses were more optimistic than their counterparts south of the Border.

Yet 60 per cent of Scottish businesses don’t expect to see the full momentum of economic recovery until the second half of 2012, the report said.

Worringly, another study by accountancy firm Grant Thornton found Scottish firms were less confident about growing exports than companies in other parts of the UK.