Scottish Business Hit By Big Chill

Severe winter weather last month contributed to a fall in business activity across the private sector, new research has revealed.

The latest Bank of Scotland PMI report found the headline figure for business activity had dropped below 50 - indicating a deterioration or decline - for the first time in over two years.

This fell from 52.8 in December to 47.7 in January, with both the manufacturing and services sectors reporting the adverse weather conditions had disrupted activity.

Donald MacRae, chief economist at the Bank of Scotland, said: "The first month of 2015 has given the recovery in the Scottish economy a sharp, weather-related jolt reminiscent of the bad weather effect of four years ago. ''

January was the first time since September 2012 that the headline figure - which measures month by month changes in output in both the manufacturing and service sectors - had dropped below 50.

Business activity in the services sector fell for the first time in more than four years, the report revealed, stating there was anecdotal evidence to suggest "bad weather during the month had a negative impact''

The worst-performing sector was said to be travel, tourism and  leisure, which recorded a sharp decrease in the level of activity when compared to December.

Job creation among service sector firms "slowed abruptly'' last month the report said, while the level of new business also "increased at a much slower rate''.

Manufacturing output decreased marginally in January, after three months of modest growth, the report said - although this fall in monthly production was only the third recorded since early 2013

Employment in the sector was found to have "decreased sharply during January'', with the fastest overall rate of decline in staffing numbers since June 2009.

Businesses cited a weakness in new orders as one reason for this, with the survey also showing these had decreased for the fourth time in the past five months,

Mr Macrae said: "Business activity in the private sector of the Scottish economy fell in January affected by severe weather.

"Activity dropped in both the manufacturing and services sectors but levels of employment and new business were maintained. New export orders showed an encouraging increase.''

A separate study found that business optimism for the next six months remained high, with the BDO optimism index standing at 104.4 in January - which is higher than the first month of 2014 and only 0.5 lower than was recorded in December.

Similarly the output index was down only slightly from December, going from 103.3 to 102.9, indicating firms anticipate output over the next three months to continue to grow.

Martin Gill, head of BDO LLP in Scotland, said businesses were focusing on their own prospects, rather than the results of May's general election.

He said: "This month's report shows that businesses can and will tune out of the parties' electioneering to focus on what really matters - their business prospects.

"By discounting the political noise and taking a realistic view of the economy's strengths, businesses are remaining cautiously optimistic.

"Businesses are worried less about the detail of which candidate will get the keys to Number Ten and more about the country's long-term economic prospects. In the meantime they are focusing on their own businesses and keeping rightly positive.''

Finance Secretary John Swinney said: "The PMI dipped down in January as severe weather conditions in Scotland hit trading conditions, especially for travel, tourism and leisure firms in the services sector.

"Nevertheless, it is encouraging that employment and new orders remained stable, which suggests we should see some bounce back in coming months.

"The report also had some positive news with manufacturing firms reporting a solid rise in exports sales.

"This follows on from the recent Global Connections Survey, which showed Scottish exports reaching a record £27.9 billion in 2013.

"Alongside this, firms also reported feeling the benefits of lower cost pressures, particularly in their fuel costs.''

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