Q2 sees Scots firms pick up pace but costs still onerous

Momentum forecast to continue into rest of 2018 despite headwinds, RBS says. Picture: Jane Barlow/PA Wire.

Scottish businesses are in growth mode despite cost pressures hitting their highest level in seven years, according to new data published today by Royal Bank of Scotland.

The Edinburgh-based lender’s latest Scottish business monitor, covering more than 400 companies and carried out by the Fraser of Allander Institute, said weakening sterling and the current global growth acceleration helped drive the economy in the first half of this year.

RBS found that most firms experienced a pick-up in activity over the last three months, and more is expected during the rest of the year.

According to the report, just over third of firms reported an increase in the total volume of business in the last quarter, compared to 29 per cent who witnessed a fall. The balance of 7 per cent represents a rise of six points since the first quarter and growth was strongest in transport and communication.

As for new business, this pursued an upward trend enjoyed since 2016. A net 9 per cent said the volume rose in the three months to June, building on the 8 per cent seen in the first quarter.

New business volumes grew most strongly in central Scotland, and of all those surveyed, about a third expect an increase in the next six months.

Turning to exports, about a quarter of businesses cited an increase in activity in the second quarter compared to 16 per cent reporting a decline, resulting in a balance of 7 per cent. All firms were optimistic that the trend was set to continue, albeit at a “modest” pace, with a net 11 per cent expecting export activity to rise over the next half year.

However, inflationary pressures continued to take their toll, prompting a call for cost savings. A total of 62 per cent reported higher costs in the three months to June, and just 4 per cent saw a drop.

Sebastian Burnside, chief economist with Royal Bank of Scotland, said: “It’s very welcome news that Scottish businesses are reporting growth so far in 2018 and appear confident that they can maintain that momentum into the second half of the year.

“But keeping an eye out for efficiencies is as important now as it ever has been, with such a wide range of sectors reporting rising cost pressures. Firms will have to work hard to stop rising costs eating into their margins.”

Meanwhile, Bank of Scotland called for Scottish firms to manage their cash flow and working capital “carefully” as it revealed its business barometer for July. It found that Scottish businesses’ overall confidence saw a month-on-month drop of seven points to 17 per cent, dragged by their increased negativity about the UK economy.

However, their optimism in their own prospects reached 31 per cent, two points higher than a month ago. Jane Clark-Hutchison, head of mid markets, Scotland, said that all in all the findings show “how resilient businesses are throughout Scotland”.