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UK BUSINESS CONFIDENCE MONITOR REPORT Q4 2012 SCOTLAND BUSINESS WITH confidence icaew.com/bcm Confidence in Scotland is fragile In the Q4 2012 ICAEW/Grant Thornton UK Business Confidence Monitor (BCM), 59 senior business professionals in Scotland were interviewed and record a Confidence Index score of 1.7. Confidence has been in positive territory in Scotland since Q2 2012, and while it remains fragile, it is notably higher now than a year ago in Q4 2011. Growth performance has weakened Employment prospects continue to worsen Businesses in Scotland have been reporting slowing growth in key performance indicators during 2012. These findings come as economic conditions remain tough: the latest figures from the Scottish Government suggest that economic output fell by 0.4% in Q2 2012 in the third consecutive quarter of contraction. Labour market conditions in Scotland have been worsening in 2012. Businesses have reduced their headcounts by 0.8% over the past year, following a downward trend in net job creation from 0.9% annual growth in staffing levels in Q4 2011. In addition, businesses predict further employment cutbacks of 0.4% over the coming 12 months as the economic outlook remains uncertain and confidence stays low. Weak private sector labour demand will hold back prospects for Scotland’s jobless workers as planned public sector job cuts continue; there are reports of extensive job losses to come, as councils in Glasgow and North Lanarkshire address budget deficits. Alongside the weakening economy, growth in gross profits and sales volumes has been slowing this year, rising by their lowest rates since Q2 2010 at 0.9% and 0.5% respectively over the past 12 months. In addition, businesses report turnover rising by just 1.0% over the past year, following a general downward trend from 6.0% annual growth in the final quarter of 2011. Despite tough conditions and a decline in performance this quarter, expectations have remained reasonably strong. In line with confidence readings that have strengthened since Q4 2011, turnover is predicted to rise over the next year by 3.8%, while gross profits and sales volumes are expected to grow by 4.0% and 3.6% respectively. The latest figures from BCM reflect official statistics that show the unemployment rate increasing year on year by 0.3 percentage points during the three months to August. The unemployment rate stands at 8.2%, above the national average of 7.9%. In October Vion UK announced 1,700 job losses in Scotland, a result of the closure of the Hall’s meat processing plant in Broxborn following unsustainable operating losses. icaew.com/bcm Fig. 1 Bcm confidence index trend in scotland Weak economic conditions holding back expansion 40 An increasing number of Scottish businesses are finding it more difficult to expand into new areas, with more than one in five (22%) companies reporting this to be a greater challenge now than a year ago, up from just 9% of businesses in Q4 2010. 30 20 10 0 -10 -20 -30 Scotland -40 UK Average -50 -60 Q4 Q1 Q2 2008 2009 Q3 Q4 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2011 Fig. 2 Q4 2012 – 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 Domestic sales Exports Scotland is relatively insulated from the recession in the eurozone, with just one third of its goods exports being sent to the area, compared to an average of half of exports for the UK as a whole. However, the global economy has cooled in 2012, and slower growth in the US and emerging economies is likely to be holding back Scottish businesses’ expansion plans. In addition, regulatory requirements are increasingly seen as more of an issue for doing business in Scotland, with more than half of companies (55%) reporting this fact as a greater challenge now than a year ago. 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 MKTPLM11749 11/12