Bank of Scotland: Scottish economy slowing sharply in the three months ending February 2015

EDINBURGH, 27-3-2015 — /EuropaWire/ — The latest Business Monitor from Bank of Scotland shows the Scottish economy slowing sharply in the three months ending February 2015. However, expectations for the next six months remain elevated at levels slightly below 2007 at their seventh highest quarterly level in seven and a quarter years.

In the three months ending February 2015, 33% of firms surveyed increased turnover, 34% experienced static turnover, and 33% experienced a decrease. This gave a net balance of 0%, well down from the +16% of the previous quarter and the +18% of the same quarter one year ago.  This is the worst result in 21 months and suggests the Scottish economy experienced a sharp jolt to growth at the start of this year. This latest result ends a sequence of six consecutive quarters of a positive net balance for turnover, but has not turned this measure negative as last experienced in summer 2013.

The overall net balance of turnover for firms in the production sector in the three months to end February 2015 was -4%. This is significantly down on the +12% of the previous quarter and the +16% of the same quarter one year ago.

Service firms showed an overall net balance for turnover for the three months ending February of +4%, well down on the +19% of the previous quarter and the +20% of the same quarter one year ago. Both sectors are showing a sharp slowdown.

Volumes of repeat business have fallen. The overall net balance of +1% is sharply down from the +15% of the previous quarter and the +10% of the same quarter one year ago. Trends in the volume of new business are equally negative in the latest three months with an overall net balance of +2% compared to +18% of the previous quarter and the +22% of the same quarter one year ago.

Export activity is one of the few areas where a positive trend has emerged. The overall net balance for export activity at +6% is an improvement on the -4% of the previous quarter but is still below the +12% of the same quarter one year ago. Exporting to Eurozone economies should become easier as growth picks up in many of the currency bloc’s countries but will be hampered by the rise of sterling against the Euro as Quantitative Easing (QE) proceeds.

Firms’ assessment of their immediate prospects in the next six months were on a rising trend throughout 2013 and reached highs in the first two quarters of 2014. The remainder of 2014 showed lower but still strongly positive levels of expectations. Despite the poor experience at the start of this year, expectations remain high and close to the high levels evident pre-recession. This is the ninth successive Business Monitor showing a positive net balance for turnover expectations – the most optimistic sequence of results since seven and a quarter years.

Expectations for turnover in the next six months ending August 2015 are showing an overall net balance of +14%. This is slightly down on the +19% of the previous quarter but well down on the +37% of the same quarter one year ago. Whilst 46% expect turnover to be static in the next six months, 34% expect turnover to increase against 20% who expect a decrease. Service firms are more optimistic than production firms, with service firms showing an overall net balance for turnover for the next six months at +19% compared to +8% for production firms.

The latest net balance for expected export activity for the next six months has fallen. The net balance reached +2% – down on the +5% of last quarter and the Monitor record of +42% of the same quarter one year ago. An increase in uncertainty, a slowing world economy and a rising pound sterling have taken their toll of firms’ assessment of export prospects.

Expectations for the volume of repeat business were marginally down on the high levels of the last quarter with an overall net balance of +10% for this quarter compared to +13% for the previous quarter and significantly down +27% for the same quarter one year ago.  Expectations for the volume of new business in the next six months were again optimistic but slightly down compared to last quarter with the latest net balance at +14% – down on the +19% of the previous quarter and down on the +34% of the same quarter one year ago.

These expectation levels suggest the private sector of the Scottish economy will show trend level growth in the second quarter of 2015 recovering from a slowdown at the start of the year.

Donald MacRae, chief economist, Bank of Scotland said: “The Scottish economy slowed at the start of 2015 but is expected to return to moderate growth in spring. Expectations have fallen slightly but remain close to pre-recession levels suggesting that growth will pick up in the second quarter of the year.”

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For further information:
Name: Zoe Redhead, Bank of Scotland Press Office
Tel: 0131 655 5405
Email: zoeredhead@bankofscotland.co.uk
Web: www.lloydsbankinggroup.com/media.asp