Scotland's economy: growth continues despite consumer woes

Scottish businesses are upbeat about their prospects for the months ahead but concern is growing about the impact of issues including falling incomes and recruitment difficulties, according to a major report today.

Consumer demand drives about three-quarters of Scotland's economic growth. Picture: John Devlin
Consumer demand drives about three-quarters of Scotland's economic growth. Picture: John Devlin

The latest quarterly economic indicator from the Scottish Chambers of Commerce (SCC) shows most businesses have a positive outlook for the coming months and that the Scottish economy will continue to grow this year.

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But there are fears about the impact of falling real income levels, particularly in the retail sector where businesses are also facing price rise pressures.

There is also evidence that the low unemployment rate may be impacting on the ability of businesses to recruit the staff they need.

The report, released in collaboration with the University of Strathclyde’s Fraser of Allander Institute, covers performance in key sectors including construction, financial and business services, manufacturing, retail and tourism during the second quarter of the year.

Construction and manufacturing firms reported strong results during the three-month period, with the latter experiencing an increase in staffing levels.

Tourism businesses also reported an increase in employment, with visitor numbers up over the quarter.

Firms in finance and business services reported a further improvement in sales, with the net balance of firms reporting sales growth the highest it has been in two years.

However, almost half of retail companies saw a decline in profit levels over the quarter, with increased pressure to raise prices. More than half expect to increase prices over the next three months.

Neil Amner, chair of the SCC’s economic advisory group, said the data indicates the Scottish economy will continue to grow this year.

But he added: “Businesses are, however, also highlighting longer-term threats to success from factors such as falling real incomes and rising recruitment problems.

“The retail sector is perhaps most exposed to pressures on household budgets. Consumer demand drives around three-quarters of Scotland’s economic growth, so unless the recent falls in real earnings are reversed, there is a risk that the impact could spread to the wider economy.”

Amner said recruitment pressures underline the need for early agreement on the rights of existing European Union workers to live and work in the UK and for the UK’s future migration policy to be driven by business need.

Meanwhile, a survey by membership body the Institute of Directors (IoD) has found firms are still holding off making contingency plans to deal with Brexit as they wait for more clarity from the UK government.

Most said they have made plans, but only one in ten have started implementing them.