Business confidence negative as profits fall

Business confidence in Scotland has swung into negative territory for the first time in three years and is now the lowest of anywhere in the UK, according to a report out today.

ICAEW Scotland president Andrew Hewett said figures showed an ongoing decline in confidence in Scotland. Picture: PA

Sales, turnover and profit growth all fell during the second quarter of the year, the latest business confidence monitor from Grant Thornton and the Institute of Chartered Accountants in England and Wales (ICAEW) shows.

Scottish firms recorded a confidence score of minus 7.4, down from a positive reading of 3.6 for the first quarter, and well below the UK average of 16.6.

The report found that Scottish businesses suffered a sustained slowdown across a range of key financial performance indicators, with year-on-year ­profit growth falling from 6 per cent a year ago to 3.3 per cent. Similar decelerations were seen in sales volumes and turnover.

Export growth has also seen a notable decline in recent quarters, with overseas sales increasing by just 0.6 per cent over the last 12 months, compared with a 3.1 per cent increase in the year to the second quarter of 2014.

The report suggests Scottish firms do not expect performance to improve in the immediate future, with respondents forecasting a further decline in the growth of key indicators over the next 12 months.

Turnover growth is expected to drop from the 3.4 per cent recorded over the past year to just 1 per cent over the next 12 months.

ICAEW Scotland president Andrew Hewett said today’s figures showed an ongoing decline in confidence in Scotland, which he said could be partly blamed on uncertainty.

“The aftermath of the referendum, the run-up to the general election, the forthcoming Holyrood elections and the possibility of an EU referendum combine to mean that there is, potentially, an even deeper degree of uncertainty in Scotland than there is elsewhere in the UK, a feeling which is reflected in Scottish confidence levels,” he said.

Grant Thornton UK’s managing partner in Scotland, Kevin Engel, said the significant drop in confidence north of the Border was concerning.

“However, the Scottish business community is historically resilient,” he added.

“Now is the time for that tenacity in the face of challenging conditions to come to the fore to resist the potential dip in economic performance that may follow.”

The wavering confidence levels have led to evidence that companies have begun to scale back their hiring intentions.

Increases in headcounts over the last 12 months, at 0.7 per cent, were already well below the UK average of 2.2 per cent. Firms also expect growth in hiring to decline further to just 0.3 per cent over the next year.

The report found that the outlook is particularly weak in the oil and gas ­industry.

However, companies indicate that they do plan to increase spending on staff development, with budgets rising by 2.3 per cent over the next 12 months, compared with just 0.4 per cent over the past year despite expected weaker sales growth.

The report said the plans are likely to be a reaction to the growing challenges businesses are facing from skills shortages in the labour market.

The share of firms reporting that the availability of management and non-management skills is a greater challenge has grown from 16 per cent a year ago to a little under 30 per cent.