Downbeat outlook for Scots economy as confidence slips

● Confidence hits low last seen in 2016 amid slump in manufacturing output

Business confidence in Scotland slumped to a 28-month low in February as sustained Brexit uncertainty led to a subdued economic outlook, according to Royal Bank of Scotland’s latest figures.

The Scottish economy faced a downturn last month, with a slip in private sector business activity and a sharp drop in production by the manufacturing sector dragging the index lower.

The country was one of just three of the 12 monitored parts of the UK to experience a further recorded contraction, along with the North East and London.

Business confidence in Scotland dipped for a third straight month, sinking to its lowest point since October 2016, while optimism north of the Border was the second-weakest level recorded across the UK.

Brexit and concerns about the domestic economy were commonly cited as factors for the weak performance, according to the bank’s purchasing managers’ index (PMI) survey.

The latest PMI data revealed that Scotland’s private sector economy was subdued, with key gauges of business health, such as output and new orders, falling.

Employment in Scotland saw a very-small increase, marginally up from January.

The seasonally adjusted headlinepmiregisteredbelow the 50 no-change threshold in February, signalling a further decline in private sector business activity.

At 49.4, the headline figure was slightly up from January’s 49.2, but signalled divergence from the overall UK picture, where output increased.

Malcolm Buchanan, the chair of the Royal Bank of Scotland’s board in Scotland, said: “Latest PMI data for Scotland portrayed a further downbeat assessment of the economy north of the Border, with the two key business health gauges of output and new orders both in contraction territory.

“Indeed, relative to the other 11 monitored areas of the UK, Scotland was among the underperformers.

“Weighing on the economic climate in Scotland was uncertainty, particularly relating to Brexit and the knock-on effects this will have on client confidence.

“Caution was also signalled by employment data, which showed just a rate of growth below the long-run trend.”

Meanwhile, research conducted by Yougov and audit and tax firm RSM found that almost half (44 per cent) of Scottish middle market businesses believe that a no-deal Brexit would be “either harmful or catastrophic” to their business.

This represents a rise of 37 per cent rise compared with the previous quarter.

Alex Tait, RSM’S regional managing partner for Scotland and Northern Ireland, said: “A no-deal Brexit would be acutely felt in Scotland, not least because of the impact it might have in key sectors such as financial services, manufacturing and tourism; but also the prospect of a second independence referendum.”