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Economy still finely balanced

Policymakers urged to avoid rate rises as confidence slips

scottish industryAny thoughts of an early interest rate rise must be set aside in favour of rebalancing the economy, says a leading Scottish accountant.

Martin Gill of BDO urges restraint by policymakers on the back of a survey by his firm showing business confidence has fallen for a fifth consecutive month.

BDO’s Business Trends report also reveals that manufacturing confidence is at its lowest for almost three years.

It says economic growth is expected to continue throughout 2015, but a sharp drop in business confidence suggests that the current momentum is under threat.

Mr Gill, partner and head of BDO in Scotland, said: “While the expected continued economic growth is encouraging, falling business confidence suggests we’re approaching a turning point in the economy.

“Policy makers cannot ignore this, otherwise they run the risk of an economic slowdown. Any rumours of a rate rise in the near future must be squashed. Now is not the time to cut household spending, the very thing driving economic growth, or to introduce moves that will strengthen the pound further and hit our exporters.

“We cannot rely on consumer spending and services in the long-term. Policy makers must focus on steps to rebalance the economy and give support to manufacturers and greater wealth creation in Scotland and elsewhere outside London and the South East.”

Bank of Scotland PMI Survey

Survey data for August signalled continued improvements in Scotland’s private sector, as output and new orders expanded across both the manufacturing and service sectors. Nevertheless, in all cases rates of expansion eased since July.

Following a reduction seen in the previous month, staffing levels rose in August. The expansion was broad-based by sector. Meanwhile, cost burdens rose at the slowest rate in 16-and-a-half years, while competitiveness led businesses to offer price discounts.

Scottish private sector firms reported a return to employment growth in August, although the rise was less substantial than the average for the UK. Where payroll numbers rose, this was linked by survey members to new business growth.

Donald MacRae, chief economist at Bank of Scotland, said: “The private sector continues to recover from the slowdown at the start of the year but the Scottish economy will have to rely on the Government sector to raise growth to trend levels in the third quarter of this year.”

Scottish Retail Consortium 

August footfall numbers in Scotland were 1.5% lower than a year ago, above the UK average for the first time in four months and significantly above the three month average rate of -2.1%.

David LonsdaleDavid Lonsdale (left), director of the Scottish Retail Consortium, said: “Footfall in Scotland’s retail destinations eased down once again in August, albeit at a slower pace than witnessed over recent months. The performance was better than the three-month average, and ought to be seen in the context of a tough comparable during the same period last year.

“What is clear is that weak demand coupled with rising cost pressures is making life challenging for a number of retailers, many of which are revamping their businesses in order to respond to the profound changes in the way we are all shopping.

“Lots of empty units can put off shoppers and so it is crucial that more is done to drive vacancies down, and the public sector can play its part by removing or reducing barriers which can stifle investment in retail destinations.”

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