North-east firms eye upturn despite inflation woes

North-east firms are preparing for the first upturn in new business for two years. Picture: Craig Stephen
North-east firms are preparing for the first upturn in new business for two years. Picture: Craig Stephen
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Confidence among Scottish businesses is proving resilient following a “modest” start to the year, according to a key study out today.

A third of companies reported a rise in the volume of business during the first quarter of 2017, the latest Royal Bank of Scotland Business Monitor reveals.

Firms expect growth in 2017 to be marginally more positive than 2016

Professor Graeme Roy

Export activity was flat but businesses are anticipating growth over the next six months, driven in part by the fall in the value of the pound in the wake of the Brexit vote.

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Encouragingly, the survey, which is conducted by the Fraser of Allander Institute for RBS, found that firms in the north-east are preparing for an upturn in new business for the first time in two years.

However, businesses also highlighted inflationary pressures, which are leading to rising costs for the majority of companies, while capital investment has dropping markedly since late 2016.

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The survey of more than 400 firms reveals that 34 per cent of them saw an increase in the total volume of business during the last quarter, compared to 31 per cent who witnessed a fall in activity. The balance of 3 per cent is a drop of eight points since the final quarter of 2016.

The performance of the financial and business services sector was strongest, with a net 14 per cent reporting an increase in total business volumes. Transport and communications also enjoyed a strong performance with a net 9.5 per cent reporting an increase. However, a net 16 per cent of construction firms suffered a fall in business volumes.

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Collectively, a net 21 per cent of all firms surveyed said they expected total business volumes to rise in the coming six months. Firms in all parts of the country expect business volumes to grow, including a net 10 per cent in the North-east, suggesting that the prolonged hangover in the region since 2014’s oil price slide may be coming to an end.

Stephen Boyle, chief economist with RBS, said: “Growth amongst Scotland’s businesses was pretty tepid in the three months to February but some growth has been achieved. The main development, however, was mounting inflationary pressure.”

Professor Graeme Roy, director of the Fraser of Allander Institute, added: “Despite concerns about inflation picking up, firms expect growth in 2017 to be marginally more positive than 2016.

“However, the increase in uncertainty caused by the triggering of Article 50 and the prospects of a second independence referendum will act as a headwind for many businesses.”

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