Scotland set to plunge into recession as report shows slump in turnover

SCOTLAND'S economy is in a plunging downturn that has "not yet hit the bottom", a leading economist warned today as a bank's survey of almost 2,000 companies north of the Border revealed the worst results in its history.

Professor Donald MacRae, chief economist with Lloyds TSB Scotland, said recession was on its way for Scotland as more businesses warned of plummeting sales and added that they were increasingly concerned about the availability of credit.

The bank's quarterly Business Monitor found that 51 per cent of firms surveyed reported a decrease in turnover, while just 20 per cent experienced increased sales in the three months to the end of November.

The figures give a net balance of -31 per cent, down dramatically from the previous quarter's figure of -10 per cent and a strong contrast to the +16 per cent recorded for the same quarter a year ago.

Companies also forecast a gloomy outlook for the next six months, with the majority saying they did not expect turnover to increase. In further misery for the business community, a separate UK-wide report has claimed that around one in 20 of the country's small businesses could fail this year.

The Forum of Private Business said that 200,000 of Britain's 4.7 million small firms could go bust in a "worst-case" prediction of the recession.

The Lloyds TSB report, to be published today, showed that the service sector was affected harder than manufacturing – although both reported record low results since the Business Monitor was launched 11 years ago.

MacRae said: "Scotland is certainly feeling the full effects of the credit crunch, with the worst results on record in the 11 years of the Lloyds TSB Scotland Business Monitor."

He added: "The Scottish economy has entered a severe slowdown, which has yet to hit the bottom.

"All business types are showing a slowdown in business volumes, falling turnover and a lack of repeat and new business."

In the service sector, the number of firms experiencing a fall in turnover due to the volume of repeat business was almost four times the number who reported an increase, giving a net figure of -31 per cent.

New business figures were even worse at -38 per cent.

And the outlook for the next six months is even more gloomy, the survey claimed – with expectations of a -44 per cent balance of companies expecting an increase in turnover during the period.

The figure is a sharp contrast to the +17 per cent of the same period 12 months earlier.

Just 12 per cent of Scottish businesses expect turnover to increase in the next six months compared to 56 per cent who expect a decline.