Gloomy economic data prompts calls to boost businesses

Action is required to bolster the outlook for both the Scottish and UK economies, according to various economic studies published today pointing to a clouded horizon, but with some glimpses of optimism.

Scotland's economy is facing a 'bumpy road ahead' next year. Picture: Robert Perry

The Bank of Scotland purchasing managers’ index (PMI) for November revealed that business activity in the Scottish private sector weakened slightly.

Firms reported the first contraction in output for three months, with reduced demand weighing especially heavily on the services sector. The index, which produces a single-figure measure of the month-on-month change in combined manufacturing and services output, slipped from 50.6 in October to 49.4 last month, with the marginal contraction the first reported since August.

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Across the private sector, new order levels lowered and the first reduction in workforce numbers since June was detected. Service providers recorded a moderate decline in business activity during the month, although production growth was recorded in the manufacturing sector.

The rate of job-cutting was described as “slight” but cost pressures on firms were said to remain marked.

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Nick Laird, regional managing director for Bank of Scotland commercial banking, said: “With job cuts evident for the first time since June and input costs such as fuel prices, higher wages and foreign exchange rates increasing, companies will be looking for a pick-up in new business in the new year to help rejuvenate the sector.”

Also forecasting a rather overcast outlook was the latest study of business trends from advisory group BDO, which said rising inflation and falling business optimism meant a “bumpy road ahead in 2017 for Scotland”.

While its output index, which indicates how businesses expect to perform in the coming quarter, rose from 96.7 to 97.1 last month, suggesting the UK economy had stabilised in a “lower gear” than before the EU referendum, its optimism index fell to 98 from 98.5.

Martin Gill, head of BDO in Scotland, praised the uptick in business output in a troubled time for Scottish firms and the economy. “However, businesses remain nervous during this period of Brexit limbo and this nervousness is a significant contributor to the slower rate of growth we are seeing.”

He added that the UK and Scottish governments can help tackle this, a call echoed by the British Chambers of Commerce (BCC). It upgraded its UK GDP growth forecast to 2.1 per cent from 1.8 per cent for 2016 after stronger-than-expected economic growth in the third quarter, and to 1.1 per cent from 1 per cent next year.

However, it cut expectations for 2018 to 1.4 per cent from 1.8 per cent, dragged by continued Brexit uncertainty and higher inflation. Adam Marshall, BCC director-general, said its findings indicate “deeper incentives for both investment and exporting will be needed in the months and years ahead”.