Business confidence in Scotland lagging behind rUK

Global and domestic oil and gas downturn has dented confidence. Picture: Hemedia

Uncertainty ahead of the Holyrood elections and cuts in the oil and gas sector are among factors cited for the disappointing results of the latest UK Business Confidence Monitor, compiled by accountancy body ICAEW and Grant Thornton.

Scottish businesses recorded a confidence score of +7.5 for Q4 of 2015, down 5.4 points from the previous quarter’s score of +12.9. Although confidence levels in Scotland have bounced back from the negative reading seen in the second quarter of 2015, they are below the level recorded in Q4 2014 and continue to lag the UK average (+15.6 for Q4 this year).

Andrew Hewett, president of ICAEW Scotland which has around 1,500 members, said the latest decline in confidence should not be ignored.

“Whether this is the usual caution we would expect to see in the run‑up to the Holyrood election, a reflection of the uncertainty caused by cuts in the oil and gas sector, or something more remains to be seen – as does its impact in terms of future growth,” he said.

Growth across a number of financial performance indicators has continued to decline in recent quarters, today’s report says. It says sales volumes rose 3.6 per cent year on year in the latest quarter. That was down on the 4.9 per cent rise in the same period a year earlier.

Profit growth has also slowed from 4.9 per cent in Q4 2014 to 2.8 per cent in the latest quarter. The drop appears to be driven by both domestic and overseas sales, with growth weaker in both markets compared to a year ago.

The survey found a further drop in financial performance is expected in the coming quarters. Growth in both sales and profits are projected to slow to 3 per cent and 2.5 per cent respectively over the next 12 months.

Grant Thornton UK’s managing partner in Scotland, Kevin Engel, added: “A decline in sales and profit growth, which in turn has had an impact on research and development investment, is a knock‑on effect of growing uncertainty in the Scottish economy.

“The global and domestic oil and gas downturn, as well as the lead‑up to both last week’s autumn statement and spending review and next year’s Scottish Parliament elections, all contribute to this uncertainty and falling confidence.”

He said progress in overseas markets would be key for future growth. “Investment in exports, particularly whilst domestic sales are down, will play a significant role in strengthening the Scottish economy.”