Scotland’s economic fightback on track

The upbeat findings point to a solid recovery in the nation's private sector. Picture: Colin Hattersley
The upbeat findings point to a solid recovery in the nation's private sector. Picture: Colin Hattersley
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Scotland’s economic recovery continued last month though business confidence may have tapered off over the summer, new reports today suggest.

The private-sector economy saw employment rising at the fastest rate for six months during August as both the manufacturing and service sectors grew output, according to Bank of Scotland’s latest purchasing managers index (PMI).

It also highlighted a “robust” increase in incoming new business, though at a slower pace than the previous month.

The generally upbeat findings point to a solid recovery in the nation’s private sector, which accounts for about half of the overall economy.

However, a separate survey published today by accountancy firm BDO identifies a weakening in business confidence levels north of the Border.

The report’s “optimism index”, which predicts firms’ growth expectations over the coming six months, fell for the first time in six months. While modest, the drop to 105 in August from 105.1 in July gives a firm indication that economy-wide growth may plateau during the remainder of 2014, driven mainly by a steep decline in manufacturing optimism, BDO noted.

Martin Gill, head of BDO in Scotland,  said that after a strong start, the rest of the year was looking “increasingly uncertain” for businesses.

“With anaemic growth enduring in our key trading partner – the eurozone – and external shocks such as the crisis in Ukraine further dampening confidence, no one should be surprised to see growth impacted in the second half of 2014,” he said.

“An important knock-on effect in this regard relates to the Bank of England’s deliberations around interest rates.

“With weak demand in Europe keeping cost pressures on firms very low and domestic threats such as an overheating housing market seemingly largely under control, there seems to be very little in the short term that would necessitate an interest rate rise.”

The Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – was at 54.6 in August, down slightly from July’s six-month high of 56.8.

Employment in Scotland has continued to rise for 21 consecutive months and August’s rate was the most marked since February, and in excess of the UK average, according to the report.

Donald MacRae, chief economist at Bank of Scotland, said: “August saw a broad-based rise in business activity across both the services and manufacturing sectors.

“Employment rose at the fastest rate for six months, confirming continuing high levels of business confidence. The Scottish economy continues to recover and grow in the second half of 2014.”

The survey, which is carried out in conjunction with research outfit Markit, polls purchasing executives in some 600 manufacturing and service sector companies.

Meanwhile, Clydesdale Bank said today that small and medium-sized enterprises in Scotland felt that conditions were better now than in 2013, though some caution remains over their investment plans.

Scott McKerracher, a director within the bank’s business unit, said: “Many businesses are innovating, investing in new staff, expanding or purchasing their own premises and entering new markets.”