After more than two years of upbeat reports comes a ‘downer’ from the Bank of Scotland this morning. Cutbacks in the North Sea oil and gas sector, it says, have contributed to a marked fall in new business for Scottish companies last month.
The Bank says there was only “marginal growth” in the Scottish private sector economy in February.
It followed a “weather-induced” month of contraction –the first in almost two years. The fall in incoming new business ended a 26-month run of growth, with some company purchasing managers indicating that the oil and gas industry downturn was having an “an adverse impact” on business performance.
However, despite the decline in new work and “broad stagnation” of output, employment rose modestly in February. And the bank’s Purchasing Managers’ Index (PMI) improved to 50.2 last month – up from 47.7 in the previous month.
Meanwhile, two separate reports give cause for encouragement:
From the OECD comes an assessment that the weakening of its leading indicator for the UK has slowed progressively and in January was near to stabilisation – that is, the downward trend is now flattening out. It projects UK GDP growth of 2.7 per cent this year.
Its indicator dipped just 0.05 per cent month-on-month in January, down from drops of 0.07 per cent in December, 0.10 per cent in November and 0.12 per cent in October.
Purchasing managers reporting that overall services, manufacturing and construction output growth improved in February/January from a 19-month low in December.
With oil prices expected to stay low and earnings growth now trending up, the economic fundaments currently look broadly positive for the United Kingdom in 2015 – especially for consumers. Furthermore, it expects Eurozone growth to see significant improvement in 2015, which will help UK exports.
And there are clear signs that UK businesses are enjoying a boost from lower input costs – the first overall cost deflation since 2009.
A business trends report from accountancy and services group BDO says its inflation index dropped into deflationary territory in February, falling below 95 to 94.7 – the dividing line which denotes deflation.
It says the drop is primarily due to the huge fall in crude oil prices now feeding through to input prices for many businesses.
This is good news for companies, particularly manufacturers, as a reduction in energy prices and other commodities ease pressure on the bottom line. “Lower input prices will help entrench the recovery, as consumers gain more spending power,” says BDO partner Peter Hemington.
The firm says steady growth in the economy is expected to continue into the middle of this year, with BDO’s Output Index edging up from 102.9 to 103.1 this month, well above the 100 mark that represents expansion.
And the positive outlook doesn’t end there. Business confidence and companies’ hiring intentions also remain high. The firm’s Optimism Index held steady at 104.9 in February, up from 104.4 last month, indicating that uncertainty around the general election has not – or not yet – swayed confidence in continued growth over the next six months.
In addition, the Employment Index jumped to 113.1, from 111.6 in January, pointing to sustained job creation at a relatively rapid rate.
These expectations are reflected more broadly in the falling UK unemployment rate and shrinking pool of unemployed workers, meaning that workers will start to benefit from real wage growth this year.