COMPANIES in Scotland are more optimistic about their prospects for the coming six months than their counterparts in the rest of the UK, despite mounting concerns over the health of the eurozone.
A study by Lloyds Bank, published today, shows that overall business confidence has slipped since reaching a record high in July, as firms reined in their expectations for profits and sales growth.
With Greece set to return to the polls on 25 January after politicians failed to elect a new president last month, fears are growing that the country could become the first to leave the eurozone if the anti-austerity Syriza party wins power.
Tim Hinton, managing director of mid-market and SME banking at Lloyds, said: “The uncertainty in Europe and across the globe more widely in the second half of the year has affected businesses’ intentions to export. While some economic factors will be beyond their control, businesses should still explore the growth economies beyond the traditional export markets of Europe and the US.”
Hinton’s comments came as the Lloyds survey of more than 1,500 businesses showed those north of the Border had a net confidence reading of 53 per cent. That compares with the UK average of 43 per cent – down 11 points on July.
Expectations for total sales, orders and profits for the next six months have all fallen, but Hinton said the figures remained above their long-term average, adding: “It is important to remember that the UK recovery remains on track.”
A separate study from Deloitte, also out today, reveals about 60 per cent of chief financial officers believe their companies are facing “normal, high or very high levels of uncertainty”, compared with 49 per cent nine months ago.
Concerns over the general election in May, eurozone weakness and a possible referendum on the UK’s membership of the European Union were among the issues cited in the poll of 119 finance chiefs.
Deloitte chief economist Ian Stewart said: “The central challenges facing the UK’s largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas.”
However, he added: “Chief financial officers expect 2015 to be a year of investment and recovering real earnings in the UK. Corporate and consumer spending look set to lend the UK economy important support, suggesting the UK will post decent growth throughout 2015.”
Finance directors were optimistic that the long squeeze on earnings will ease this year, forecasting that wages at their firms will grow by 2.9 per cent this year, well ahead of an expected consumer prices index (CPI) inflation rate of 1.3 per cent.
Wage rises have consistently lagged behind inflation since 2008, although latest figures for the three months to October showed total pay increasing by 1.4 per cent, nudging ahead of the CPI rate.
However, a report from manufacturers’ organisation EEF revealed the number of senior executives who expect the UK economy to improve this year has slumped to 37 per cent from 70 per cent a year ago.
Figures last week showed that growth in the manufacturing sector slowed to a three-month low in December, with exports remaining a key weak spot.
EEF chief executive Terry Scuoler said: “The realities of 2014 have taken the edge off future forecasts and what we are now seeing as we head into 2015 is a far more muted outlook, tempered by a backdrop of difficulties in the EU.”
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