‘Resilient’ Scottish economy buoyed by tourism during summer of Brexit

The Scottish economy demonstrated resilience over the summer fuelled by a boost in tourism while Scottish firms achieved modest overall growth in business volumes, according to the latest Royal Bank of Scotland Business Monitor.

The survey, undertaken for RBS by the Fraser of Allander Institute at the University of Strathclyde covering the three months to august found that a third (33 per cent) of firms reported an increase in the total volume of business during the last quarter, compared to 30 33 per cent who witnessed a fall in activity.

The performance of the tourism sector was especially strong, with more than half of firms (55 per cent) reporting an increase in total business volumes.

This is in contrast with the transport and communications sector where only 18 per cent of firms reported an increase.

Collectively, a third (33 per cent) of all firms surveyed said they expected total business volumes to rise over the next six months. A quarter (26 per cent) are preparing for a decline. Almost a third (31 per cent) expect to see an increase in the volume of new business compared to a quarter (24 per cent) who are expecting a fall.

In terms of repeat business, almost a quarter (22 per cent) are preparing for a downturn. Of all the businesses surveyed, manufacturing is the least optimistic with 28% expecting a downturn. Just over a third (35 per cent) of firms said that turnover climbed during the last quarter, compared to around one in five (21 per cent) who experienced decrease. Collectively, 28 per cent of firms say they expect sales to grow over the next quarter. Within tourism, almost half (47 per cent) reported that they expect to enjoy growth.

Exports have proved challenging for all businesses with the exports balance proving negative for the fifth consecutive quarter. Just one in seven firms (14 per cent) stated that export activity rose, while a quarter (25 per cent) saw it fall. Despite this, a quarter (25 per cent) expect an increase in the six months to February 2017, perhaps as a result of the recent decline in the value of the pound.

A geographical divide remains – with regions traditionally associated with oil and gas appearing to struggle. Four in ten respondents in the North East (41 per cent) reported a fall in total volume of business so far this year. This contrasts with East Central (34 per cent) and West Central (34 per cent) which reported an increase. In terms of total business volume, the Highlands and Islands proved strongest region with nearly four in ten (38 per cent) reporting an increase in total volume of sales with the same figure (38 per cent) preparing for an increase over the next quarter.

Around four in ten (39 per cent) firms experienced a rise in costs over the last three months, with a third (32 per cent) expecting that trend to continue, which could in part reflect the weaker pound. Cost pressure was especially strong in tourism where a net 47 per cent reported an increase and in distribution (38 per cent), which includes retail and wholesale. This could be attributable to the higher National Living Wage.

Malcolm Buchanan, chairman of the Royal Bank’s Scottish board, said: “Despite a summer of political uncertainty, Scottish businesses are demonstrating resilience and there are signs of emerging optimism, which is encouraging for the future prospects for our economy.”

Professor Graeme Roy, director of the Fraser of Allander Institute, said: “On the one hand, the ongoing weakness in exporting and the apparent rise in business costs is a cause for concern.

“However on the back of significant economic and political uncertainty over the summer, the fact that a net balance of Scottish firms have reported growth – albeit at the margin – is grounds for cautious optimism.”