Scottish economy: ‘Recovery needs more investment’

SCOTTISH businesses are landing new work at a record rate but need to increase investment to sustain any meaningful recovery, research out today suggests.

Donald MacRae. Picture: TSPL

There are also concerns that growth north of the Border is lagging the rest of the UK, despite a further ­upturn in output from both the manufacturing and service sectors.

The monthly Bank of Scotland report, compiled by research consultancy Markit, is one of the most detailed examinations of economic output north of the Border, although it does not factor in the public sector.

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Its latest findings point to a continued recovery in the second quarter, with the survey’s headline activity ­barometer hitting an all-time high of 58.3 in August – the 11th month it has been above the 50 mark that separates expansion from contraction.

Donald MacRae, chief economist at Bank of Scotland, said: “The latest month’s results set two records for the survey, showing a sharp increase in business activity and new work accompanied by a strong rise in employment.

“Particularly welcome is the rise in new export orders to the highest level since May of last year.

“The pace of the economic recovery in Scotland is clearly quickening, but would be further enhanced by firms increasing investment.”

Employment rose at its quickest pace in more than six years as firms brought in new business, with an upturn now registered for the ninth month in a row. Only the West Midlands recorded a more marked increase in staffing numbers than Scotland during August.

Despite the additional staff, last month saw a further build-up of outstanding business as firms struggled to deal with back-logs.

There were no signs of inflationary pressures building, however, with input price ­inflation unchanged on the month and output charges rising at a slower rate.

The bank said services businesses led the upturn in activity north of the Border, but cautioned that the pace of expansion was still below the UK-wide average.

Today’s report follows a string of upbeat soundings on the UK economy, prompting business groups and think-tanks to upgrade their growth forecasts for this year and beyond.

Some economists have warned of a new house price bubble and the likelihood of a hike in interest rates earlier than the Bank of England has planned.

But fears of a property bubble were yesterday dismissed as “hype” by central bank policymaker Paul Fisher.

The Bank’s executive director for markets acknowledged that it was “crucial” to keep an eye on house prices but added: “So far, I don’t see evidence of any bubble behaviour.”

He told a Sunday newspaper that the market had been suffering for many years from very low transactions with price rises well below the inflation rate, and that housing supply was likely to increase as the market picked up.

A separate report today suggests that UK businesses have become more confident about their prospects, although hiring intentions may have levelled off.

Accountancy firm BDO’s output index, which predicts short-run turnover expectations and reflects the ­current experience of businesses, hit a 29-month high of 98.3 in August, up from 96.8 in July.

The result suggests the UK economy is poised to experience “robust growth” in the next quarter, BDO added.

Scotland-based partner Neil Craig said: “We’re encouraged to see that business conditions and confidence are continuing to improve, and that the UK economy is set for relatively ­robust expansion for the remainder of 2013.

“However, the sting in the tail is that the improvement is not being reflected in businesses’ hiring ­intentions.”