Scottish growth grinds to a halt in tough start to year

● Exports slide but firms remain upbeat for prospects in next six months

Scottish business expansion ground to a halt in the first three months of 2018, with exports growth continuing to slide and capital spending reined in, an influential report out today reveals.

However, the latest Royal Bank of Scotland Business Monitor says firms remain upbeat despite the headwinds, expecting “a strong rebound over the next six months”.

The report said: “Scottish business growth has stalled during the first three months of 2018. New figures reveal that the country has experienced the weakest volume of business in two years.

“Most regions across Scotland have seen no increase in growth during the first quarter of the year, with the exception of the east central areas, boosted by the financial services sector.”

The RBS Business Monitor, conducted by the Fraser of Allander Institute with more than 400 Scottish businesses, revealed that a third (32 per cent) of firms said turnover had risen in the three months to March.

But exactly 32 per cent of firms also reported that turnover had fallen, giving a stagnant net balance of +0 per cent, well down from a positive balance of +10 per cent in the final quarter of 2017.

Firms in production industries reported a muted rise in turnover (+3 per cent) while a small balance of service industry firms said that sales in the first three months of 2018 had fallen (-2 per cent).

Bucking the trend, turnover rose in east central Scotland (+12 per cent), the report added, “but was sluggish or negative elsewhere”.

One in six exporters (16 per cent) said that export activity had risen, while one in five (21 per cent) reported declines. The balance, -5 per cent, compared with +13 per cent in the previous three months and was the first decline since late 2016. Exports fell in both services and production.

However, 16 per cent of firms said they expected sales to grow in both services and production in the six months to September.

However, a net positive balance of + 7 per cent of businesses expect exports to rise in the six months to September.

Professor Graeme Roy, director of the Fraser of Allander Institute, said: “Following a challenging 2017, this first Scottish Business Monitor of the year shows that the Scottish economy continues to face challenging trading conditions.”

Roy said planned investment activity “remains stubbornly low and firms don’t expect this to improve in the immediate period ahead”.

He added: “Firms in the survey reported a slowdown in some key trends but businesses expect many of these trends to pick up during the remainder of 2018.”

Sebastian Burnside, RBS chief economist, said that Scottish businesses were also “eagerly anticipating an end to the squeeze on household finances”.

He said they felt demand would pick up as price pressures eased.