RBS monitor: Cost pressures weighing on Scots firms

The survey indicated that Scottish exporters have seen a strong pick-up in business this year

Cost pressures on Scottish firms have risen to their highest level for seven years, according to a report.

The latest Royal Bank of Scotland business monitor found inflationary pressures were having "a significant impact" on their activities.

Nearly two-thirds of all firms reported higher costs during the second quarter.

However, the majority of more than 400 companies surveyed said they had experienced increased activity over the last three months.

Firms said they expected the trend to continue for the rest of the year.

Cost pressures were felt slightly more strongly in services (+63%) than in production industries (+50%), while tourism (+82%) and distribution (+70%) reported the highest pressures.

More firms reported falling capital investment than rising expenditure.

The survey indicated that Scottish exporters in particular saw a strong pick-up in business this year.

It suggested weakening sterling and global growth acceleration had helped fuel the country's economy during the first six months.

The survey, conducted by the Fraser of Allander Institute, found that 23% of firms enjoyed an increase in export activity in the three months to June, compared with 16% reporting a decline.

The production sector led the way during the second quarter, with a net 11% reporting an increase in exports.

Businesses were optimistic that the trend would continue, with a net 11% expecting exports to rise over the next six months.

More than a third (35%) of firms reported an increase in the total volume of business during the last quarter, compared with 29% who witnessed a fall in activity.

The balance of +7% represents a rise of six points on the first quarter.

Growth was strongest in transport and communication, with a quarter (24%) reporting an increase. Manufacturing and finance and business services both enjoyed a net increase of 14%.

Tourism fell flat in the quarter, but a net third of companies said they were expecting growth during the remainder of 2018.

New business volumes grew across all regions of Scotland, most strongly in west central Scotland (33%) and east central Scotland (26%).

Southern Scotland was weakest, with a net 6% of those surveyed reporting that new business volume had grown.

'Welcome news'

RBS chief economist Sebastian Burnside said: "It's very welcome news that Scottish businesses are reporting growth so far in 2018 and appear confident that they can maintain that momentum into the second half of the year.

"But keeping an eye out for efficiencies is as important now as it ever has been with such a wide range of sectors reporting rising cost pressures.

"Consumers have already had their incomes squeezed by higher inflation, so their ability to take much more pain is limited.

"Firms will have to work hard to stop rising costs eating into their margins."

Meanwhile, a separate survey has suggested that Scottish businesses have become more upbeat about their own prospects - but less optimistic about the UK economy.

The Bank of Scotland's latest business barometer found that firms' confidence in their own future edged higher in July, to 31%.

But their optimism about the UK economy overall fell 16 points to a net balance of +2%.

This impacted on overall confidence, which fell seven points to 17%, compared with June.

A net balance of 13% of Scottish businesses said they expected to hire more staff during the next year - down three points on last month.

The survey was conducted with about 1,200 companies - including 100 businesses in Scotland - with turnover above £1m.