New figures link negative temperatures with negative turnover

The latest Lloyds TSB Scotland Business Monitor shows just how much the recovery from recession was disrupted by the snow and icy conditions at the end of last year.

Both production and service sectors were affected by the winter weather. The turnover for firms in the production sector was minus 15 per cent – a significant worsening from the minus 1 per cent of the previous quarter, but an improvement on the minus 13 per cent of the same quarter one year ago, which was also affected by severe winter weather. The figures also show how hard it has continued to be. For the three months ending in February, only a quarter of firms reported an increase in turnover, 30 per cent experienced static turnover while the rest (45 per cent) saw a decrease. This gave a net balance of minus 20 per cent – a fall from the 0 per cent of the previous quarter and a virtual repeat of the weather-affected minus 22 per cent of the same quarter last year. The bank describes this as “the most negative result in the last twelve months.”

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Service businesses were affected by the weather, with an overall net balance of minus 22 per cent this quarter. This is a significant fall from the 2 per cent of the previous quarter and is worse than the minus 17 per cent of the same quarter last year. Donald MacRae, chief economist at Lloyds TSB Scotland, said that “After five falls in seven quarters, the Scottish economy showed robust growth in quarter two last year of 1.3 per cent followed by more trend like growth of 0.5 per cent in quarter three. Given the effect of the severe weather of last December, growth in the last quarter of 2010 is expected to be around zero or even negative. “Consumer confidence,” he added, “remains positive but at low levels. Consumer spending is constrained by this low level of confidence backed by increasing levels of retail price inflation eroding disposable income already constrained by low earnings growth. The Scottish economy is forecast to grow by 1.25 per cent in 2011.” That assessment is borne out by firms’ view of the future. In the next six months, many report optimism about their prospects, with 74 per cent expecting business either to remain the same or to improve. The bank says this raises confidence to its highest level for three years, adding that it is a distinct improvement on the previous quarter and up on the same quarter a year ago. However, there is a difference between those in production and those in the service sector. Those in production are noticeably more optimistic, with 40 per cent of the responding firms expecting their turnover to increase in the next six months compared to just 17 per cent expecting a decrease. The bank points out that “the overall net balance on expectations for turnover for production firms at 23 per cent contrasts sharply with the minus 2 per cent of the previous quarter and the minus 6 per cent of the same quarter one year ago. This is the largest upwards swing in the history of the Business Monitor.” Service firms, however, are more pessimistic. Slightly more (31 per cent) expect their turnover to decrease than increase (26 per cent), with 43 per cent expecting a static position. However, the overall minus 5 per cent in the latest quarter represents a slight improvement on the minus 8 per cent of the last quarter but is down on the 7 per cent of the same quarter one year ago.

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