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Conflicting reports on Scots economy as...

Business confidence slumps after snap election

Wagamama

Mixed reports on Scotland’s services sector

Business confidence sank as a result of the uncertainty caused by the general election, according to a lobby group.

A snap poll of 700 members of the Institute of Directors found a “dramatic drop” in confidence following the hung parliament.

Members saw no clear way to resolve the political impasse quickly, the IoD said. However, it found there was “no desire” for another election this year, believing it would have a negative impact on the UK economy.

Investors are also cautious ahead of a meeting of the US Federal Reserve later in the week when interest rates may rise. The Bank of England also holds an interest rate meeting, but it is not expected to move rates.

Japan’s Nikkei 225 was down by 0.6% while in China, the Shanghai Composite lost 0.5% and Hong Kong’s Hang Seng was 1.2% lower.

The pound has stabilised on Asian markets, remaining at its low after the general election. The currency traded at $1.2753 mid-day on Monday after Friday’s $1.2743 close.

Meanwhile, conflicting reports today give a confusing picture of the Scottish services sector.

The Bank of Scotland Purchasing Managers index says Scottish private sector output has increased at its fastest rate since February, driven by the services sector returning to growth.

According to another survey from BDO growth in the services sector has slowed to a standstill and is on the brink of shrinking.

Fraser Sime, Regional Director, Bank of Scotland commercial banking said: “Latest PMI data signalled the Scottish private sector moving up a gear, as growth reached a three-month high. May’s upturn was driven by the service sector returning to expansion for the first time since February. 

“In addition, the manufacturing sector remained strong, in line with predictions that the goods-producing sector will drive second quarter growth.”

BDO’s Output Index for the services sector – which indicates how businesses expect their order books to develop over the next three months – has fallen in May and is at its lowest since June 2013.

According to BDO businesses within the services sector now say that growth in their order books has all but stopped and is hovering at recessionary levels. 

BDO says this slowdown has been apparent since August 2015, but the downward trend has been more pronounced since the EU referendum and the resulting currency devaluation which has eroded consumer spending power.

Martin Gill, head of BDO in Scotland, said:  “Business activity in the services sector is definitely slowing down, with many blaming this on the snap election. But the downward trend is clearly much more deeply rooted than this. Surprisingly, businesses in Scotland and the UK remain optimistic about the future, but an immediate recovery seems unlikely.

“The new UK government should be quick to announce immediate pro-business measures to ensure we aren’t left disappointed with an increasingly stagnant economy as we go through the rest of the year.”

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