Business confidence up but jobs market takes a blow

SCOTTISH businesses are in rude health with output levels rising, according to two major surveys released today.

Lower oil prices have helped Scotland's economy but North Sea employers are struggling

Research from the Bank of Scotland and a study by accountancy firm BDO both point to an improving backdrop for Scotland plc.

However, the reports also raise concerns over employment levels and are published just days ahead of official statistics on the labour market.

The latest Bank of Scotland purchasing managers’ index (PMI) found private firms had reported the first fall in staffing levels since October 2011, with the BDO research also showing a drop in its employment index.

Donald MacRae, bank chief economist, said the headline PMI figure for July – based on survey data from about 600 businesses – was the strongest so far this year. “Activity grew in the services sector while manufacturing output showed a welcome return to growth after the contraction of the last three months,” noted MacRae.

“New orders rose in all sectors while the pace of decline in new export orders slowed.

“Although employment fell the Scottish economy continued the recovery from the slowdown in the first quarter of the year. Moderate growth is expected for the rest of 2015.”

The report’s headline activity index came in at 52.2, up from 51.2 in June, and signalling the most marked rise in output since December. Any reading above 50 denotes growth.

It found private firms “reported further growth of output and new orders”. In the service sector the amount of new business placed with companies grew for the fifth month in a row, while the manufacturing sector reported a rise in output in July, reversing the trend for the past three months. Manufacturing firms also saw a growth in new orders last month, following a decline in June.

But the report said: “Scottish private sector firms reported the first decline in staffing levels since October 2011 during July, largely a result of job shedding in the service sector.”

While it said that some companies “linked job cuts to internal restructuring efforts” it added that the “rate at which workforce numbers were reduced was modest”.

BDO’s research also indicated an expansion in output but a drop in employment levels, with the output index up to 104.4 for July – an increase on the previous month’s total of 104.1 and higher than the 103.7 recorded 12 months ago.

The latest employment index registered 108.4, compared with 109.1 in June and 109.6 a year earlier.

Companies benefited from falling commodity prices. Although the BDO inflation index tipped into positive territory this month – rising to 95.2 from 94.6 – cheaper commodities, especially oil, are keeping business costs down and improving profits, BDO noted.

Martin Gill, head of BDO in Scotland, said: “Political certainty has bolstered short-term business confidence. The result is a thriving economy, despite global economic unrest.

“However, as business success continues to exceed other markets, the strong pound will make it harder for our exporters to find customers. We can’t let confidence tip over into complacency; keeping us competitive should be a government priority.”