Economy: Hoping for the best but preparing for the worst

Has the recovery taken hold or is a double dip recession just around the corner? Scotland's business leaders reveal where they see the economy heading

THE Bank of England has slashed its growth forecasts for the UK economy but governor Mervyn King insists Britain will remain in recovery - albeit a "choppy" one. However, with unemployment now at 7.8 per cent across the whole of the UK - 8 per cent in Scotland - and 113 billion of spending cuts and tax rises on the way, the markets live in fear of a double dip recession. Amid this jigsaw puzzle of economic data we asked Scottish business leaders how they feel about the next 6-12 months.

Richard Marsham group managing partner, the Leith Agency

How confident are you about the next 6-12 months?

I'm cautiously optimistic. This year has seen a resurgence of our private sector work. However the planned public sector cuts are a worry for us, and probably many other marketing service companies throughout the UK.

Do you fear a double dip recession?

Yes. Global uncertainty and the fragile nature of so many different countries economies makes it a real risk.

What will be the biggest challenges to your business over the next 6-12 months?

Procurement departments driving harder and harder deals and public sector cuts. Also, tough economic times and increased competition inevitably lead us to try and get more out of the same people which can lead to disillusionment with the industry in general and the loss of good talent.

What could the UK and Scottish governments do to improve conditions?

Ultimately we need businesses to thrive and the UK to be seen as an attractive location for companies to invest and expand in. So the UK government could look at tax incentives and other inducements to attract global businesses to the UK and make sure we look after our own home-grown businesses.

As for Scotland, the creative industries are a major contributor to the economy north of the Border. This should be given further recognition and more help and support provided to help us attract more business to Scotland from the rest of the UK and abroad.

Peter Vardy

Chief executive of car dealership chain Peter Vardy

How confident are you about the next 6-12 months?

We are confident that the economy will continue to improve. I believe there are still many strong aspects to the economy and there is good potential for growth.

Do you fear a double dip recession?

No - overall I think we will see growth.

What will be the biggest challenges to your business over the next 6-12 months?

In uncertain times you certainly need to be sharper. It will be quite an exciting time if you adopt the correct approach rather than a challenging one.

What could the UK and Scottish governments do to improve conditions?

It is important that while the governments make the required cuts, they maintain consumer confidence.

Iain Pittman

Chief executive, Arran Aromatics

How confident are you about the next 6-12 months?

I am not concerned about the short term. It is the mid-term where there is the most uncertainty.

Do you fear a double dip recession?

Given the uncertain economic conditions and the changes in national government's policies last week, it cannot be ruled out.

What will be the biggest challenges to your business over the next 6-12 months?

Consumer confidence and access to money. Although banks are slowly beginning to lend, funding for key projects is still hard to come by.

What could the UK and Scottish governments do to improve conditions?

Westminster should stop talking everything down. There are companies and organisations that are expanding and we must encourage small businesses to lead the economy through the recession. In Scotland, Scottish manufacturing should be supported by utilising the resources of the enterprise agencies, Scottish Government, local government and Scottish Development International.

Dougal Sharp

Managing director, Innis & Gunn

How confident are you about the next 6-12 months?

Very confident.

Do you fear a double dip recession?

Some sort of downturn is inevitable.

What will be the biggest challenges to your business over the next 6-12 months?

We need to focus on getting back to routine brewing and selling. We have poured investment into the business for 12 months to build the resource to grow beyond one million cases. With that level of investment and change comes disruption to the day-to-day operations, so we are all looking forward to getting back to business as usual.

What could the UK and Scottish governments do to improve conditions?

The planned reduction in corporation tax will be a big help, especially for business like ours that are in strong growth and are investing for the future.

Philip Rodney

Chairman, Burness

How confident are you about the next 6-12 months?

One cannot be confident about the economy over the short term. We don't really know what the knock on effect of cuts in public spending will be - but it is bound to mean less consumer spending.

Do you fear a double-dip recession?

I tend to take Nouriel Roubini's forecasts seriously. Having been known as Dr Doom, he has now been nicknamed Dr Realist. His belief is that there is a greater than 50 per cent chance of a double-dip recession. I wouldn't want to argue against him.

What will be the biggest challenges to your business over the next 6-12 months?

In a market where there is going to be little if any growth, our strategy is to increase our turnover through greater market share. The challenge will be to recruit the best people in the market to support our expansion.

What could the UK and Scottish governments do to improve conditions?

For Westminster, it may be too late. The extent and speed of the cuts are too great at a time where some stimulus is required. The angle of descent should be moderated. I also think the "one size fits all" approach won't work. In some sectors 25 per cent cuts may be appropriate. In others, investment is required. The reverse is true at Holyrood. Because of the upcoming elections, some difficult decisions about cuts have been postponed. I would like to see them being evaluated carefully now.

Donald McLaughlin

Director for Cisco Scotland

How confident are you about the next 6-12 months?

I'm confident Scottish businesses will continue to embrace technology as a way to drive up productivity and improve customer service.

Do you fear a double dip recession?

As long as we continue to focus on making our organisations more efficient and more productive then we will be in a stronger position to deal with whatever comes along.

What will be the biggest challenges to your business over the next 6-12 months?

From reducing costs and emissions to increasing efficiency, there are underlying challenges that every business faces and they rarely ever go completely off anyone's radar. So while we face many of the same challenges as our peers, Cisco is also laying the foundations for some of our most ambitious projects to date.

What could the UK and Scottish governments do to improve conditions?

Across the UK we need our public services to function properly and efficiently. While business needs to take responsibility for its own future, the government also has a duty to make their job as easy as possible. From a Scottish perspective, we need to see more initiatives around helping Scottish companies succeed internationally. We are simply not exporting enough.

Leigh Wilson

Chief executive JetLogic

How confident are you about the next 6-12 months?

Very confident.

Do you fear a double dip recession?

I'm not sure if it can be avoided. However, we've thrived in difficult times in a very competitive market and I'm confident we'll continue to do so.

What will be the biggest challenges to your business over the next 6-12 months?

As with all companies in aviation, there is always the worry of increases on fuel prices and also the increase in VAT from 17.5% to 20% next year could affect our clients who fly internally in the UK.

What could the UK and Scottish governments do to improve conditions?

I'm as conscious as everyone else in business is that our banks are now largely government owned, and part of that process was supposed to lead to a greater willingness to lend to small businesses. We were very fortunate in that we didn't have to go down that road but I know that this just isn't happening which, given that we all want to work our way of the recession, is deeply disappointing.

Ed Monaghan

Group chief executive, Mactaggart & Mickel

How confident are you about the next 6-12 months?

Housebuilding went off the edge of a cliff in May 2008 and at that time we prepared our business for what we saw as a three-year journey towards recovery. Most recently I have begun to consider the implications of us not reaching "the new norm" until 2012.

Do you fear a double dip recession?

We as a nation are in danger of talking ourselves into a double-dip recession as consumers batten down the hatches and rein in spending. It is important to strike a balance between the challenges we all face in the coming months and the opportunities that still exist.

What will be the biggest challenges to your business over the next 6-12 months?

Keeping calm and carrying on.

What could the UK and Scottish governments do to improve conditions?

The coalition should use its share in the government-owned banks to boost lending to small and medium sized businesses and free up the mortgage market to assist first time buyers get on the first rung of the housing ladder. No one is advocating the reckless lending that got us into this mess but wringing your hands and blaming the previous government now that you have the reins sounds hollow.

David Nish

Chief executive, Standard Life

How confident are you about the next 6-12 months?

The outlook is still clouded with economic uncertainty however, the underlying fundamentals for financial markets are OK.

Do you fear a double dip recession?

There are risks but we believe a double dip will be avoided. The world economy faces undoubted headwinds that mean that the pace of recovery will be slower than we have been historically used to but in the same way that the impact of the financial crisis was unevenly spread throughout the world so are these headwinds.

What will be the biggest challenges to your business over the next 6-12 months?

In periods of uncertainty such as this one it is very important to focus on things that are under your influence. At Standard Life this means investing time in the relationship with our customers and ensuring our levels of service remain high.

What could the UK and Scottish governments do to improve conditions?

Legislators in both parliaments need to ensure the right balance between gaining efficiencies on one hand and the levels of investment required to build competitiveness on the other. There is a need to reduce bureaucracy, leverage infrastructure spend and ensure our education system supports skills building that are relevant to business at all levels.

Sir Tom Hunter

Founder, West Coast Capital

How confident are you about the next 6-12 months?

The glass is half full. On the one hand the overwhelming crisis that impacted everyone is over, on the other we now have punitive public sector cutbacks and increases in VAT that will wrench the economy backwards unless we stimulate growth.

Do you fear a double dip recession?

There's no point in fearing a recession - you simply have to put your head down and build your business.

What will be the biggest challenges to your business over the next 6-12 months?

Consumer conservatism driven by public sector cutbacks and the VAT increase.

What could the UK and the Scottish governments do to improve conditions?

Instead of sitting on the fence, have the nerve to markedly reduce corporation tax, deliver focused tax and National Insurance reductions for start-ups, further reduce personal tax for the poorest and reverse the proposed VAT increases. The Scottish Government should use the tax varying powers in their gift to reduce taxes. Cutting without stimulation is akin to being stuck in reverse gear - there's only one way we're going and that's backwards.

Clive Miquel

Chief executive, Lees Foods Plc

How confident are you about the next 6-12 months?

We are quietly confident. Operating in the food sector we appear less affected by the economic situation than those in non-food categories.

Do you fear a double dip recession?

The government continues to be unrealistic about their economic growth forecasts to make the numbers look better. There's clearly a long way to go before we're out of the current recession.

What do you think will be the biggest challenges to your business over the next 6-12 months?

Volatile commodity prices. While the weak pound may help our exports, many of our ingredients are purchased in euro/dollars.

What could the UK and Scottish governments do to improve conditions?

The reduction in corporation tax announced at the last Budget was welcome. The increase in VAT to 20 per cent was not. The increase in Capital Gains Tax will have a detrimental effect on motivating entrepreneurs to grow their businesses, which is critical to economic recovery. If either Westminster or the Scottish Government was to provide funding to Scottish manufacturers to stimulate growth this would be a positive step.

Duncan Skinner

Chief financial officer, Production Services Network

How confident are you about the next 6-12 months?

In terms of PSN and the oil and gas industry, I remain confident we can continue to grow our business.

Do you fear a double dip recession?

No. PSN looks after existing oil and gas facilities and the recent recession saw the business continue to grow as there was relatively modest reduction in world demand for oil and gas.

What will be the biggest challenges to your business over the next 6-12 months?

Availability of competent resources. The ability to continue to attract and retain the best people into the oil and gas business versus the requirement to maintain cost discipline in our industry.

What could the UK and Scottish governments do to improve conditions?

Westminster could help by ensuring the UK oil and gas basin is fully exploited through a radical relaxing of fiscal conditions to encourage full production through existing infrastructure. Holyrood can help by supporting the internationalisation of the UK based oil and gas service industry.

Martin Gilbert

Chief executive, Aberdeen Asset Management

How confident are you about the next 6-12 months?

Times will be certainly tough but Scotland remains home to some world-class businesses which are thriving despite the economic environment. Hopefully they can continue to build on their success.

Do you fear a double dip recession?

No. While a reduction in spending by government and consumers will affect growth, UK companies and particularly exporters are in generally good shape and will benefit from sterling's weakness.

What will be the biggest challenges to your business over the next 6-12 months?

Our biggest challenge is to continue the strong organic growth we've achieved over recent years by raising the profile of some of our lesser known products.

What could the UK and Scottish governments do to improve conditions?

Government should look to encourage and foster growth at the same time as implementing austerity measures. Both governments should continue to support business through overseas trade missions and also the entrepreneur through tax incentives.

James Pow

Chief executive of Cruise

How confident are you about the next 6-12 months?

The economy remains fragile and any business that has not changed its footprint, metrics or model in the last 12 months could be playing a dangerous game, particularly through the third quarter and moving forward.

Do you fear a double dip recession?

It would be completely foolish for any management not to have considered a double dip recession in the worldwide economies in light of recent press, which sadly can be self-fulfilling and contagious as consumers become over cautious.

What will be the biggest challenges to your business over the next 6-12 months?

The biggest challenge to the business will be within the management team. The speed with which we are implementing change within the business needs to be maintained for at least another six to nine months, with no room for let up on already stretched workloads.

What could the UK and Scottish governments do to improve conditions?

The UK government appears to be dealing with the cost cutting required but I hope its time line of execution is managed carefully and with focus. Businesses need to be reassured that the government has the necessary skills required and the flexibility to react to any early warning signals should they need to slowdown or speed up the process of spending reform.

Meanwhile, the Scottish Government needs to be careful not to push an already fragile position too hard and should maintain a close relationship with Westminster.

Carina Svensen

General manager, at Edinburgh's Hotel Missoni.

How confident are you about the next 6-12 months?

The recession is having an impact on everyone but we're holding our position in the market. The capital is an outstanding destination for business and leisure visitors alike all year round, and our prime city centre location means we boast the top tourist spots right on our doorstep.

Do you fear a double dip recession?

Obviously it's not something you can hide away from and we're very aware of what the future may hold. However, we're seeing that people are still travelling and are still seeking those affordable luxuries.

What do you think will be the biggest challenges to your business over the next 6-12 months?

People are becoming more and more price conscious - guests want added value and they want an enhanced experience. Our biggest challenge will be staying at the top but we have a strong, talented team focused on delivering exceptional standards and we're constantly looking at new ways of doing things to stay ahead.

What could the UK and Scottish governments do to improve conditions?

Any support for tourism - within the UK and internationally - would serve the hospitality industry well. There are huge opportunities to build careers in hospitality yet there is a significant hospitality skills shortage. More support and training to encourage young people to enter the industry and communicating that, while a being a hard working industry, it's a hugely rewarding one to be part of, would certainly be of benefit.

Dr Simon Best

Chief executive, biotechnology company Aquapharm

How confident are you about the next 6-12 months?

I am confident for my own company, Aquapharm, because its technologies and product pipeline address global unmet needs with immediate relevance to growth markets in Asia and because we're in partnership discussions with global-scale companies with the scope and financial resources to help us address these.

Do you fear a double dip recession?

No but I do fear a long period of alternating no/slow growth in the UK or "bouncing along the bottom".

What will be the biggest challenges to your business over the next 6-12 months?

Recruiting, retaining and motivating key staff to move to/stay in Scotland and the UK more generally - about 35 per cent of our staff are from overseas, in particular from Australasia.

What could the UK and Scottish governments do to improve conditions?

The UK Government should clarify its immigration and work-permit policies for skilled workers to ensure UK knowledge-based companies requiring skills that are now scarce in this country can attract appropriately qualified staff. They should maintain support for the Technology Strategy Board, which remains one of the most useful legacy innovations of the previous government.

The Scottish Government could encourage Scottish Enterprise to take the necessary steps to attract venture capital funds back to Scotland. While the strategy of co-investment has been helpful at the smaller end of the funding spectrum, it has failed to attract new VC funds of any scale to set-up in Scotland or existing ones to locate staff or branch offices here. VC funds are critical to "pick up the baton" from angel and public sector funds to fill the next stage of the "funding gap" that exists in the UK.

Jamie Matheson

Executive chairman, Brewin Dolphin

How confident are you about the next 6-12 months?

We will recover - but right now we are in difficult economic times which we all need to work through, and it may take longer than 6-12 months.

Do you fear a double dip recession?

Not particularly but then I am not overly obsessed with the very short term.

What will be the biggest challenges to your business over the next 6-12 months?

Any knee-jerk regulation or legislation, and the inevitable bumps along the road to recovery.

What could the UK and the Scottish governments do to improve conditions?

Encourage responsible enterprise by all means, while avoiding the temptation to legislate for recovery.

Robert Graham

Managing director, Graham's The Family Dairy

How confident are you about the next 6-12 months?

Very.Do you fear a double dip recession?

No - but I believe it is coming whether it be this year or next.

What will be the biggest challenges to your business over the next 6-12 months?

I don't foresee any big challenges. We just want to concentrate on maintaining our quality products and excellent service while continuing to invest in new product development.

What could the UK and Scottish government do to improve conditions?

Government as a whole needs to concentrate on cutting taxes. Personal tax is too high which discourages enterprise. Corporation tax needs to be reduced to retain profits for reinvestment. The biggest change required is capital allowances - the last government's reduction in capital allowances for businesses discourages reinvestment.

Vivien Kyles Chief executive, Hamilton Park Racecourse

How confident are you about the next 6-12 months?

The next 12 months will be just as testing as the past 12. If we all cut back then I fear smaller businesses will take more than their share of pain, without the continued support of the banks and other funders to ease the cash flow problems.

Do you fear a double dip recession?

It will depend on how bullish businesses are prepared to be, or can afford to be.

What will be the biggest challenges to your business over the next 6-12 months?

Where revenues are likely to come down further we will be continuing to trim costs where possible which are less outwardly noticeable. We have also begun to diversify our income streams.

What could the UK and Scottish governments do to improve conditions?

Specifically for horse racing Westminster needs to re-look at how the levy is calculated and who pays it. There are too many loop holes which are costing British horseracing millions of pounds.