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UK BUSINESS CONFIDENCE MONITOR REPORT Q1 2013 SCOTLAND BUSINESS WITH CONFIDENCE icaew.com/bcm CONFIDENCE REMAINS IN POSITIVE TERRITORY IN SCOTLAND In the Q1 2013 ICAEW/Grant Thornton UK Business Confidence Monitor (BCM) 52 senior business professionals in Scotland were interviewed and record a Confidence Index score of 5.5. While the Confidence Index remains in positive territory for the fourth consecutive quarter, the current reading stands below the UK average of +12.8 and confidence remains weak. PACE OF GROWTH CONTINUES TO SLOW LABOUR MARKET REMAINS WEAK Data from the Scottish Government show growth in economic output has been sluggish, with GDP rising by just 0.4% over the year to Q3 2012. Against this backdrop of a fragile economy, Scottish businesses report weak growth in several key performance indicators. Sales volumes actually declined, falling by 0.1% over the 12 months to Q1 2013. Turnover data are slightly more encouraging, with businesses recording a modest increase of 0.8% for the year to Q1 2013. Nevertheless, the last time turnover growth was slower than this was in Q4 2009. Conditions in the Scottish job market have been weak over the year. This quarter, companies report headcounts increasing by just 0.1% over the previous 12 months. This follows a trend of falling job creation, from 0.9% annual staffing growth in Q4 2011. Despite weak economic growth and a decline in key performance indicators this quarter, expectations for 2013 have remained relatively strong as businesses expect better conditions ahead. In line with confidence readings, which have been positive for a year, sales volumes are predicted to rise by 4.2% over the coming 12 months, while turnover and exports are expected to grow by 4.7% and 3.9% respectively. Data from the Office for National Statistics show that the Scottish unemployment rate fell to 7.8% in Q3 2012, but public sector cutbacks present a further challenge to the labour market. These have the potential to put upward pressure on Scotland’s unemployment rate, which is already above the UK average. A 2012 budget review recommended reducing Scottish public sector employment by between 5.7% and 10% by 2014–15; while the Scottish government has stated its hope to avoid compulsory redundancies, up to 60,000 public sector jobs could be at risk. BCM data show that the private sector expects modest headcount growth of 1.0% over the next 12 months. If realised, this could help to absorb some reduction in public sector employment. icaew.com/bcm FIG. 1 BCM CONFIDENCE INDEX TREND IN SCOTLAND REGULATORY REQUIREMENTS A GROWING CHALLENGE 40 The proportion of Scottish businesses finding regulatory requirements to be a greater challenge has continued to increase this quarter. Now, 61% of companies say it is more difficult to deal with regulation than a year ago, up from 38% in Q1 2012. 30 20 10 0 -10 -20 -30 Scotland -40 UK Average -50 -60 Q1 Q2 Q3 2009 Q4 Q1 Q2 2010 Q3 Q4 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2012 Q1 2013 FIG. 2 Q1 2013 – SCOTLAND AVERAGE % CHANGE IN … % 8 Change 7 6 5 4 Versus last 12 months 3 2 Expected next 12 months 1 0 Turnover icaew.com/bcm Gross profits Exports Number of Employees Increased financial sector regulation, particularly rises in capital requirements, will have affected banks in Scotland. If it becomes law, the Banking Reform Bill could place a further regulatory burden on Scottish banks as it will enable the government to break up those which do not ring-fence their retail and commercial operations sufficiently. The Scottish regulatory agenda could further increase the burden on businesses. The forthcoming ‘Food Information (Scotland) Regulations 2013’, may lead to new regulations for food-related businesses, and the recent Scottish Government review, Lower carbon buildings – a review of energy standards and guidance within Scottish building regulations, could see legislation imposing greater energy-efficiency requirements on new buildings in Scotland. ICAEW Institute Members in Scotland PO Box 26198 Dunfermline Fife KY12 8ZD T +44 (0)131 202 1251 icaew.com/ims linkedin.com – find ICAEW twitter.com/icaew facebook.com/icaew © ICAEW MKTPLM12043 02/13