New survey shows optimism slipping

Oil slump fails to stimulate business confidence among Scottish firms

scottish industryFalling oil prices have been partly blamed for a slump in Scottish confidence to a two-year low, despite predictions that lower fuel costs would lead to an increase in business activity.

Capital spending rose by only 1% over the last year against 4.5% in the previous 12 months.

The latest results from accountants Grant Thornton and the Institute of Chartered Accountants in England and Wales (ICAEW) detected a weakening of optimism among Scottish firms with a corresponding decline in performance.

Scottish businesses are anticipating tougher conditions

Sales volumes in the first quarter last year were up  7.2%. This quarter they report 4.3% growth and now expect this to fall further to 3.9% for the next 12 months.

The Business Confidence Monitor also says the recent rapid decline in the cost of crude oil and its associated impact on North Sea jobs and investment is another “probable factor” in the decline in confidence.

This quarter, more than a third of businesses in Scotland (35%) feel that competition in the marketplace is a greater challenge than it was a year ago, up from 23% in Q1 2014. At the same time, 38% see customer demand as more of a challenge, again significantly up from this time last year.

This uncertainty surrounding North Sea oil and the general decline in confidence overall is reflected in the fall in capital investment reported by respondents this quarter. Over the past 12 months Scottish companies have reported an increase of 1% in their capital spending. Whilst this investment is partly positive, spending growth is now well down from the 4.5% year-on-year increase seen this time last year.

Grant Thornton’s Scotland managing partner, Kevin Engel, said: “Given the impact lower oil prices, UK elections, weak European economic growth and overseas political unrest, it is not surprising confidence has dropped. While such a significant drop in confidence is naturally concerning, there are reasons to be optimistic. Our research shows that despite low confidence levels in the past, the Scottish business community is resilient, innovative and in good shape to face these challenges. Scottish business output continues to grow, as does long term employment and remuneration. Whether low confidence translates to a drop in economic performance is yet to be seen.”

ICAEW Scotland president, Paul Adderley, added:  “Whilst it is always disappointing to see confidence amongst Scottish businesses decline, we should be encouraged by the fact that Scottish confidence is still in positive territory.

“Factors such as the current uncertainty in the oil and gas sector and the fact that we are in the run-up to a General Election have surely impacted on the confidence levels here. Against such a backdrop, a cautious mood is only to be expected and it will be interesting to see if confidence rallies later in the year when the election is over and we become more accustomed to impact of oil prices.”

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