The Elite Ayrshire Business Circle

The Elite Ayrshire Business Circle

Saturday, 19 July 2008


Scotland bucks the trend and weathers the economic storm

By: Murdoch MacDonald

TOUGHER economic conditions are taking their toll on business confidence as company profits continue to decline, according to the latest Business in Britain survey from Lloyds TSB Commercial.  
 
Firms’ optimism about prospects for the coming six months has hit its lowest level since the survey began. The Business Confidence Index for July shows that the balance of firms expecting better rather than worse order books, profits and sales over the next six months fell sharply to -8 per cent, from +18 per cent in January.

However, there are significant variations in the results for different regions, with Scotland showing a more positive slant with a figure of +2 per cent.
 
Taking order book levels alone, the balance of companies expecting higher rather than lower levels in the coming six months, dropped to zero from +22 per cent in January. In addition a balance of just +2 per cent of firms are predicting higher rather than lower sales, compared to +28 per cent six months ago, while the balance of companies expecting higher rather than lower profits has fallen from +4 per cent to -25 per cent; the lowest in the survey’s history and the largest half year drop ever recorded.
 
This lack of optimism about the next six months reflects firms’ experiences in the first half of the year. The report, based on the responses of more than 1,800 UK firms, shows that, during the first six months of 2008, a balance of just +6 per cent of companies reported rising, rather than falling sales (+37 per cent and +31 per cent respectively).

This trend of falling profits, sales and order books is shared across all sectors, especially in construction and retail, where the balance of firms expecting higher sales for the first half of the year hit -19 per cent and -22 per cent respectively. The least affected sectors were transport and communications, in which +21 per cent of companies reported a rise rather than a fall in sales, down marginally from +28 per cent six months ago.
 
Despite these falling national indices, the picture in some regions is brighter, with several parts of the country bucking the overall trends. Scotland is showing a more optimistic picture with business confidence showing at +2 per cent, one of only two regions to show a positive figure. Additionally, +8 per cent of Scottish firms reported an increase in sales as opposed to a UK figure of +6 percent.

Lloyds TSB Scotland corporate and commercial director Manus Fullerton said: “As we are all aware, the UK as a whole is currently experiencing a challenging business climate. However, it is encouraging that Scotland appears to be weathering these difficulties better and indeed is more optimistic for the future with +22 per cent of Scottish businesses reporting an increase in their order books for the last six months, compared to a UK figure of just +1 per cent.”

Another cause for optimism is that firms’ outlook for exports still seems to be holding up in contrast to falling domestic demand. Buoyed by the competitiveness of the pound against the euro and by rising demand in emerging markets, the balance of companies expecting higher rather than lower export orders over the coming six months remains strong, having dropped only marginally, from +24 per cent to +22 per cent. As a result +35 per cent of firms say they expect to sell more goods abroad in the second half of the year, down only slightly from +37 per cent in the first six months.
 
Lloyds TSB Commercial managing director John Maltby said: “The challenging economic climate is putting businesses to the test. And with sales and profits squeezed, it’s no surprise that so many firms are suffering a lack of confidence.

“But the reality is that many firms will be able to weather this storm. Our survey indicates slow growth rather than recession and business liquidity remains good. With the right support and financial help, there are lots of opportunities for strong businesses to continue growing.”

Lloyds TSB Corporate Markets chief economist Trevor Williams said: “Economic growth is undoubtedly slowing, exacerbated by the global credit crisis and by rising price inflation. But businesses have reasons to be optimistic.
 
“While it is true growth is likely to slow from 3 per cent last year to an average of 1.75 per cent this year, we’re likely to avoid recession this year and next, helped in part by the weakening pound.
 
“The fact is that companies are proving to be more competitive than in recent downturns, with stronger balance sheets and higher productivity. As wages remain under control and overseas markets continue to expand, it is clear many UK firms are in a good position to see off this challenging period of slower growth.”

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