Oil and gas woes continue to weigh down businesses

Picture: Hemedia
Picture: Hemedia
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The economic backdrop dragged on Scottish businesses last month as the struggles faced by the oil and gas sector continued to take their toll, according to two reports published today.

There was a steeper drop in business conditions for Scotland’s private sector in the month, with output down, according to Bank of Scotland’s latest purchasing managers’ index (PMI).

It found that seasonally adjusted headline PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – scored 48.5 in March, down from 49.2 in February. Any reading below 50 denotes contraction.

The fall was led by a sharp decline in manufacturing, production shrinking at its fastest pace since December 2010. Business activity in the service sector dropped for the second consecutive month.

Alasdair Gardner, Bank of Scotland regional managing director Scotland, commercial banking, said: “Scotland’s private sector experienced harsher business conditions during March, as the current downturn intensified.

“Moreover, the struggles endured in the economy’s oil and gas industry continued to take a toll on output and new order levels, which both contracted. As a result, job shedding is evident for the fourth successive month as firms looked to cut back on production costs.”

The study found that firms’ input prices grew further last month, the quickest rise since October last year, but cut their average tariffs for the eighth consecutive month, anecdotally attributed to higher competitive forces in the economy.

A backdrop of economic pressures was also cited in a study by accountancy firm BDO, which said a slowdown in services last month was dampening the economy and confidence of businesses north of the Border, resulting in “gloomy” figures.

Its optimism index, which predicts growth six months’ ahead, hit its lowest level for more than two years last month, falling to 99.4 from 104.9 in March last year. Both this and its output index, which looks at orders for the next three months, dropped for six months in a row.

Martin Gill, head of BDO in Scotland, noted the impact of political and economic uncertainty on Scotland’s businesses, saying: “The EU referendum, the continued difficulties faced by the oil and gas sector, and the economic difficulties being faced in the Eurozone and China are all contributing to a mood of insecurity which is hitting investment and growth plans.

“Scotland’s slowing economy may be in need of additional support to protect its growth. Given that the UK government can currently borrow at rates never seen before, there may be a benefit in investing in public infrastructure projects.

“Expansion in roads, house and rail building programmes could reignite the manufacturing sector and be a boost to the wider economy.”