Scottish firms on high amid economic good news

BUSINESSES are bullish about their ­prospects for 2015, according to twin ­reports published today, one of which talks of a “confidence cocktail” of economic indicators.

Edinburgh's financial district. Picture: TSPL

Experts at accountancy firm BDO said a convergence of continued low inflation, falling costs, solid jobs growth and a rise in real wages looked set to create a confidence boost for businesses and consumers. The firm’s latest Business Trends report suggests that Scottish companies expect to grow in the first half of this year, with consumers likely to enjoy the knock on effects.

Its findings come as another survey, from Bank of Scotland, reveals that Scotland’s private sector economy finished 2014 on a “solid footing”. The monthly purchasing managers’ index (PMI) found employment and business output grew in December, continuing at the same rate as the previous month.

It is forecast that the economy will still grow during 2015, though at a slower pace than last year – echoing other recent reports.

Martin Gill: 'This is a positive start, but there are clouds on the horizon.' Picture: Contributed

The seasonally adjusted headline PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – was unchanged in December from November’s reading of 52.8. Any result above 50 indicates growth.

Donald MacRae, chief economist at Bank of Scotland, said: “December’s PMI was 52.8, indicating solid growth in the final month of last year. Both manufacturing and services sectors employed more people and experienced welcome increases in the level of new orders.

“However, new export orders fell for the tenth time in 11 months, confirming the challenges of exporting to the largely stagnant eurozone economies.

“The Scottish economy continued to recover in the second half of 2014 and looks set to expand during 2015, but with growth easing compared to the high levels of the first six months of 2014.”

BDO’s optimism index, which tracks how businesses expect orders to develop over the near term, found that confidence rose to a new quarterly high of 104.9 in December, well above the 100 mark indicating the long-term average.

However, the report also urged caution over the continuing fall in oil prices and the effect it will have on the North Sea industry, and potential business uncertainty around the general election in May.

Martin Gill, head of BDO in Scotland, said: “This is a positive start to the year although I would urge caution on being too optimistic on a single month’s results.

“Optimism has increased, hiring expectations remain strong and inflationary pressures are down. But there are clouds on the economic horizon.

“The falling oil price is both good and bad news for Scotland, with lower prices easing transportation and some production costs but equally posing a threat to the Scottish oil and gas industry and its direct and indirect employees.”

Deputy First Minister John Swinney said: “With further improvements in economic conditions expected this year, this should bring opportunities for business and greater financial security for households across the country.

“Whilst the [PMI] survey highlights that conditions for exporters remain challenging – particularly with continued weakness in some of Scotland’s key export markets – [it] still points to a solid end to 2014.”