Confidence still falling as costs keep climbing

FIRMS in Scotland fear that rising transport, energy and raw material costs could derail the fragile economic recovery, the latest quarterly survey from the Scottish Chambers of Commerce (SCC) shows today.

Business confidence has continued to slide and expectations for the second quarter among manufacturers and retailers are weaker than they were during the comparable period last year.

The survey, which is conducted with Strathclyde University's Fraser of Allander Institute, points to surging costs as the main concern for the 1,200 Scottish businesses polled.

But low consumer confidence, weak demand and January's wintry weather also hit the private sector hard during the first three months of the year.

Although inflation eased off last month to 4 per cent, the SCC study warns that pressures to raise prices in Scotland's retail sector hit a record level during the first quarter while price pressures in the manufacturing sector also reached a peak not seen for more than two years.

Garry Clark, head of policy and public affairs at SCC, said: "Despite the welcome news this week that the consumer prices index and retail prices index measures of inflation have dropped back slightly, it is clear that there is an increasing pressure on margins and prices from rising raw material, energy and transportation costs.

"It is increasingly likely that costs will have to be passed on to customers and consumers, adding to inflationary pressures in the second half of 2011."

Manufacturers continued to enjoy healthy levels of export sales but the survey painted a particularly gloomy picture for retailers, with trends in sales at their lowest levels for more than six years.

Demand in Scotland's battered construction sector remained "depressed".