CONFIDENCE among Scotland's retailers, manufacturers, construction firms and tourism businesses took a battering in the first three months of this year as the credit crisis deepened, a wide-ranging survey today revealed.
Releasing its latest quarterly report, the Scottish Chambers of Commerce (SCC) said that business confidence was at its lowest level for more than three years. Only the wholesale distribution sector reported a slight upturn in optimism.
However, S
CC chief executive Liz Cameron warned against "talking ourselves into a recession". She said businesses able to adapt to higher cost pressures and fluctuating currencies had the "opportunity to prosper".
Today's survey – based on the responses from almost 300 companies polled during March and early April – comes just days after Royal Bank of Scotland's monthly Purchasing Managers' Index (PMI) suggested that nearly five years of growth was set to end.
The PMI report revealed that output rose only modestly north of the Border last month, while levels of new business declined for the first time since June 2003.
Cameron said SCC's research had unearthed a "complex, challenging but growing Scottish economy set against a background of global credit realignment".
She argued that Scotland was "not sitting on the verge of a traditional recession".
"We are facing a new economic environment," Cameron said. "We are leaving behind the era of cheap energy and entering an era of higher cost pressures and greater pressures on margins.
"This is creating new challenges but also new opportunities for prosperity if businesses are able to develop to their strengths both in the domestic and international marketplace."
The research, conducted in collaboration with the Fraser of Allander Institute, based at Strathclyde University, found that cost pressures were continuing to bite.
Concerns over raw material costs remained evident in the first quarter, being cited by 85 per cent of manufacturing and almost two-thirds of retail respondents.
A sectoral breakdown showed the trend in new work and contracts in construction had eased to the lowest for more than four years. Retailers highlighted the weakest sales trends for two years.
In construction, there were marked differences in the levels of orders between larger and smaller companies.
Meanwhile, rising costs, poor weather and weakening consumer sentiment weighed on confidence levels in the tourism sector. Compared to a year earlier, expectations for visitor numbers from the UK and abroad for the second quarter were weaker.
Pay increases during the first quarter ranged from 3.5 per cent in the retail sector to a little below 5.4 per cent within tourism.
SCC used the publication of the report to call for "imaginative solutions" from both business and government to tackle a "very complex economic environment".
Cameron said: "This is a time for government to develop new economic policies to deal with the new business environment and to help sustain growth at a time of higher costs.
"It is clear that the manipulation of interest rates by the Bank of England alone is not an effective means of achieving this.
"Additionally, we need to take a long-term strategic view on areas such as energy – how this is supplied, where and by whom – if we are to get to the root of the issues that affect the way in which we do business in the 21st century."
Fears for future cast shadow over fall in jobless figuresUNEMPLOYMENT levels continued to fall on both sides of the Border last month, official figures yesterday revealed, but analysts warned of trouble ahead as slowing economic growth and weaker business confidence take their toll.
According to data from the Office for National Statistics, Scotland's claimant count – those people out of work and claiming jobseeker's allowance – fell by 300 in March to 68,700. The figure is 11,600 lower than a year earlier.
On the alternative International Labour Organisation measure, the jobless rate eased by 1,000 over the thee months to the end of February, leaving 130,000 unemployed – a fall of 9,000 compared to the same quarter last year.
At 4.9 per cent, the Scottish unemployment rate is below the UK average of 5.2 per cent.
UK-wide, unemployment dropped by 39,000 to 1.61 million in the three-month period, while the jobseeker's allowance total fell last month by 1,200 to 794,300, the lowest figure since the summer of 1975.
Scotland Office minister David Cairns said the statistics showed the Scottish labour market was continuing to perform well.
"The data illustrates that, even in the face of global economic turbulence, unemployment has still fallen over the last quarter.
"Despite unemployment, employment and economic activity levels being in a better position than at the same time last year, we cannot be complacent."
Howard Archer, chief economist at forecasting body Global Insight, pointed out that unemployment was a lagging indicator, noting that the UK labour market was starting to show "some signs of softening".
"It seems highly likely that slowing growth and weaker business confidence will exact an increasing toll on the labour market over the coming months," he said.
Charles Davis, an economist at CEBR, added: "The overall trend in the labour market shows that the strong falls in unemployment are soon likely to come to an end."
The ONS also said UK average earnings rose an annualised 3.7 per cent in the three months to February, down from a 3.9 per cent increase in the three months to January. Analysts had forecast a reading of 3.6 per cent.
Excluding bonuses, the rate picked up to 3.8 per cent – the highest since November 2006, but below the recent peak of 5.3 per cent in 2001.
Davis added: "Whilst average earnings rose marginally, there is still no strong evidence that above-target inflation is feeding through to the labour market and raising medium-term inflation expectations. This indicates that the (Bank of England's] monetary policy committee may have more room for a 25 basis point (quarter point] rate cut in May."
The ONS figures showed total employment in Scotland stood at 2,536,000, a fall of 4,000 over the quarter but an increase of 15,000 over the year.
The full article contains 1036 words and appears in The Scotsman newspaper.
