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Drink-drive rules and weak euro hit figures

UK’s “puzzling failure” to boost output as economy falters

HospitalityTight new rules on drink-driving and the weakness of the euro put the brakes on Scottish economic growth last month as new figures also show a “puzzling failure” of the UK to increase productivity.

New alcohol limits on motorists and eurozone weakness hit hospitality and exporting businesses which dragged down private sector activity, according to Bank of Scotland. Its purchasing managers index for March fell for the second time in the past three surveys.

Manufacturers signalled a fractional increase in output, but also a fall in new orders, mainly from the subdued oil and gas industry. Service sector companies recorded a fall in activity for a second month in the past three.

There was a rise in recruitment intentions, echoed in a poll from accountancy firm BDO which said business hiring intentions are at “sky-high” levels with figures “stronger than the heady days of the mid 2000s boom.”

Donald MacRae, chief economist at Bank of Scotland, said: “March’s PMI confirmed a poor month for the private sector of the Scottish economy.

“Manufacturing exporters have been affected by the falling euro while services businesses in hospitality are seeing a changing pattern of spending resulting from the lowered alcohol limit while driving.”

However, he was optimistic for the remainder of the year. “Recovery is on the way with levels of new business increasing, employment rising in all sectors and the oil price up 20% from January’s low,” he said.

The Business Trends Report by BDO was bullish about job prospects, while noting the UK’s “puzzling failure to increase productivity, despite continuing strong economic expansion.”

It said workers’ output per hour has been static during the last two years of the recovery.

“Such a long period of flat productivity is unprecedented in the period since World War II and the trend is unique amongst advanced economies.”

Despite this negative trend, BDO’s output and optimism indices, which predict economic growth three and six months ahead respectively, remain significantly above the 100 mark, which indicates growth above the long-term trend.

Commenting on the findings, Martin Gill, head of BDO in Scotland, said: “While it is encouraging to see strong business confidence, the continuing poor labour productivity performance is a very significant concern.

“Although employment growth in recent years has been strong, much of this has been in part-time jobs. Productivity ultimately determines our prosperity so it is a crucial area that must be addressed. Policymakers of all persuasion must take on this productivity puzzle.”

 Responding to the Bank of Scotland survey, Deputy First Minister and Finance Secretary John Swinney said: “Whilst the Bank of Scotland’s PMI indicated a slight softening in economic activity at the start of the year, it also shows some encouraging signs of improvement, with their report of prospects for new orders and employment both looking up.

“Recent labour market data has shown that employment in Scotland continued to increase as the start of the year, whilst the Bank of Scotland’s Business Monitor reported that business expectations for the volume of business, turnover and exports over the next six months are positive.

“Challenges do remain for Scottish businesses, with the impact of falling oil prices on the oil & gas industry, sterling’s continued strength against the euro and continued weakness in the euro area.

“However, the Fraser of Allander Institute forecasts continue to show strong growth for the Scottish economy in 2015 as a whole, highlighting potential benefits to Scotland from falling oil prices offsetting some of the challenges that also creates.”

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