Scots firms show resilience but confidence remains low

Published on 12/12/2011 00:00

Scottish firms continued to grow in November despite dwindling new business, creating jobs for the first time in four months and demonstrating their “resilience” compared with the rest of Britain.

The latest purchasing managers’ index (PMI) from Bank of Scotland, published today, pointed to a further mild expansion of Scottish private sector activity last month.

The survey posted a score of 51.1 for November, up slightly from October’s mark of 51, on a scale where 50 sits at the point between growth and recession. This latest monthly increase in private sector activity extended the current spell of growth to 11 months, with higher output registered by both manufacturers and services providers.

But the Bank of Scotland survey said output levels had increased through work to fill backlogs, while the amount of new business received by Scottish firms fell for the third consecutive month.

Donald MacRae, chief economist at Bank of Scotland, said the Scottish PMI was above both the UK and the eurozone levels, “showing the resilience of the Scottish economy”.

But he warned: “Both new orders and new export orders fell in the month, highlighting the challenge of maintaining growth in the face of the global slowdown.”

The drop in incoming new work was due to the manufacturing sector, which suffered from a decline in demand for Scotland’s goods.

The survey said backlogs of work reduced markedly, with outstanding business being cleared at a sharper rate than usual. This suggests Scottish manufacturing will not be able to continue growing for long unless it sees a pick‑up in orders.

A modest rise in service sector business wins softened the overall contraction in new work.

However, manufacturers still created jobs, taking on staff at a faster rate than their service sector counterparts.

The survey, carried out in conjunction with research firm Markit and based on feedback from 600 companies, coincides with the publication of a report by accountancy firm BDO which suggests that the UK as a whole faces a possible recession this winter.

BDO’s output index – which measures turnover expectations three months ahead – dropped to 92.5 in November, its lowest level since June 2009.

The index has remained below the crucial 95 mark that indicates negative growth since July 2011, suggesting that the UK economy could have already entered a period of contraction in the current quarter.

Forecasts for the first half of 2012 are equally gloomy.

BDO’s optimism index – which predicts business confidence in two quarters’ time and has been below 95 since September – saw a considerable drop, from 94.1 in October to 92.5 in November.

Neil Craig, managing partner for BDO in Glasgow, said uncertainty over the eurozone was “plaguing” confidence.

He said: “We believe it is imperative that the [UK] government adopt a more liberal approach to borrowing, enabling larger scale government investment in infrastructure.”

He suggested that housing projects in particular were “crying out” for government finance which would “throw a lifeline to the UK’s stuttering recovery”.