Scottish confidence lags as firms hit growth problems

Scottish business confidence has dropped below the UK average, despite firms enjoying strong sales growth over the past 12 months.

Forecasts for exports have been downgraded for 2014, adding to concerns over sustaining economic growth. Picture:Getty
Forecasts for exports have been downgraded for 2014, adding to concerns over sustaining economic growth. Picture:Getty

The latest UK business confidence monitor, which is published today by accountancy firm Grant Thornton and membership organisation ICAEW, reveals a score of +15.1 for companies based north of the Border, well below the UK average of +32.3. Three months ago the monitor had stood at around 
35 on both sides of the Border

Although confidence levels across the UK have fallen, Grant Thornton said it was probably just a sign that firms were encountering growth-related problems.

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The practice’s managing partner in Scotland, Kevin Engel, said: “Earlier this year, business confidence in Scotland rose to record levels, buoyed by a resurgence in economic activity. Recovery takes time and presents its own challenges – from accessing capital for growth to finding and adequately rewarding a skilled workforce.”

He added: “There are some clear positive elements to our latest findings. Businesses continue to report strong sales growth with exports now outpacing the rest of the UK. There are some clear areas of concern for Scotland’s businesses, but the long-term outlook remains positive.”

The report also shows that the average Scottish business saw sales volumes grow 4.5 per cent in the last year, with exports outperforming the wider UK.

The findings come as the British Chambers of Commerce (BCC) today upgraded its growth forecasts for the UK economy, although it still thinks the current rate of growth will not be sustained.

It now expects overall output to grow by 3.2 per cent this year and 
2.8 per cent in 2015, up 0.1 percentage points each. Its prognosis for 2016 remains unchanged at 2.5 per cent.

The business lobby group said the slowdown reflects a “deceleration in household consumption” and falling public spending as a share of GDP.

At the same time, it is dampening its expectations for exports, with growth forecast slashed from 1.9 per cent to 
0.8 per cent for 2014. Its expectation for next year edged down from 4.2 per cent to 4.1 per cent.

BCC director-general John Longworth called the expected slowdown in 2015 and 2016 a “warning sign” for the UK, which is currently too reliant on consumer spending as a growth driver.

“The task at hand is to ensure that the stellar 2014 growth is not a flash in the pan,” he argued. “We need to invest and export more, innovate, and build.

“It is disappointing that we have downgraded export growth for the next two years as a strong international trade performance is key if we are to steer away from a reliance on consumer spending.

“While business investment is forecast to grow strongly over the next three years, it will be growing from a low base.

“To sustain investment momentum into the future, the government and the Bank of England need to give businesses the confidence they need to invest by keeping official interest rates low for as long as possible.”

He said any future rate rises “must be gradual and modest”.