Royal Bank of Scotland Business Monitor - Q3 2016

 

The latest Royal Bank of Scotland Business Monitor showed that the Scottish economy demonstrated resilience over the summer fuelled by a boost in tourism.

The Business Monitor survey is undertaken for the Royal Bank of Scotland by the Fraser of Allander Institute at the University of Strathclyde. It is the definitive monitor of business trends, market conditions, financial factors and business conditions in the Scottish economy and is based on a postal and electronic survey carried out quarterly.  The Institute created the database of respondents, co-designed the questionnaire, ensured the validity and reliability of the responses and analysed the returns from businesses.

The main findings of the Q3 2016 survey were:

  • Modest growth in Scotland continued in Q3 and is set to continue into 2017
  • A strong performance for tourism sector in the three months to August 2016
  • A third of Scottish companies report growth in volume of business during three months to August
  • Central belt experiencing continued positivity but concerns for North East remain
  • Exporting remains a challenge with negative balance for sixth consecutive quarter.

A third (33%) of firms reported an increase in the total volume of business during the last quarter, compared to 30% who witnessed a fall in activity. The performance of the tourism sector was especially strong, with more than half of firms (55%) reporting an increase in total business volumes. This is in contrast with the transport and communications sector where only 18% of firms reported an increase.  Collectively, a third (33%) of all firms surveyed said they expected total business volumes to rise over the next six months. A quarter (26%) are preparing for a decline. Almost a third (31%) expect to see an increase in the volume of new business compared to a quarter (24%) who are expecting a fall.

In terms of repeat business, almost a quarter (22%) are preparing for a downturn. Of all the businesses surveyed, manufacturing is the least optimistic with 28% expecting a downturn.  Just over a third (35%) of firms said that turnover climbed during the last quarter, compared to around one in five (21%) who experienced decrease.   Collectively, 28% of firms say they expect sales to grow over the next quarter. Within tourism, almost half (47%) reported that they expect to enjoy growth.

Exports have proved challenging for all businesses with the exports balance proving negative for the fifth consecutive quarter.   Just one in seven firms (14%) stated that export activity rose, while a quarter (25%) saw it fall. Despite this, a quarter (25%) expect an increase in the six months to February 2017, perhaps as a result of the recent decline in the value of the pound.

A geographical divide remains – with regions traditionally associated with oil and gas appearing to struggle.  Four in ten respondents in the North East (41%) reported a fall in total volume of business so far this year. This contrasts with East Central (34%) and West Central (34%) which reported an increase.  In terms of total business volume, the Highlands and Islands proved strongest region with nearly four in ten (38%) reporting an increase in total volume of sales with the same figure (38%) preparing for an increase over the next quarter.

Around four in ten (39%) firms experienced a rise in costs over the last three months, with a third (32%) expecting that trend to continue, which could in part reflect the weaker pound.  Cost pressure was especially strong in tourism where a net 47% reported an increase and in distribution (38%), which includes retail and wholesale. This could be attributable to the higher National Living Wage.

Professor Graeme Roy, Director of the Fraser of Allander Institute, commented:  “Today’s Royal Bank of Scotland Business Monitor provides a helpful insight into the performance of the Scottish economy over the summer, particularly in the aftermath of the EU referendum.

“On the one hand, the ongoing weakness in exporting and the apparent rise in business costs is a cause for concern.

“However on the back of significant economic and political uncertainty over the summer, the fact that a net balance of Scottish firms have reported growth – albeit at the margin – is grounds for cautious optimism.”

Published: 29 September 2016



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