Three-year high for Scottish business confidence

In its latest business monitor, Lloyds TSB Scotland said expectations for turnover in the next six months had risen across all sectors in the survey to hit their highest level for three years.

While 26 per cent of companies polled expect their sales to decrease, 42 per cent are forecasting a level position while 32 per cent predict turnover will rise. The net balance of +6 per cent is well up on the -5 per cent in the previous quarter and higher than the +2% a year ago.

The report, regarded as one of most comprehensive soundings of Scotland's private sector, is produced for the bank by the widely-respected Fraser of Allander Institute and questions more than 400 businesses.

Lloyds TSB kept its forecast for growth in the Scottish economy in 2011 at 1.25 per cent. That contrasts with the downwardly-revised 1.7 per cent prediction for the UK as a whole from the Office for Budget Responsibility last week.

Today's survey shows that Scots production firms are noticeably more optimistic than their service sector peers as they continue to benefit from strong overseas demand and a relatively weak pound. Some 40 per cent expect their turnover to increase in the next six months with just 17 per cent expecting a decrease.

The upbeat findings follow a dismal three months to the end of February. During that period, a quarter of firms reported an increase in turnover, 30 per cent experienced static sales and 45 per cent suffered a decrease. The net balance of -20 per cent was the weakest result in the last 12 months, but largely reflected the disruption caused by December's protracted cold snap.

Donald MacRae, chief economist at Lloyds TSB Scotland, said the Scottish economy's recovery from recession had been "severely disrupted" by the adverse weather.

"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," he said.

"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."

MacRae said consumer spending was being held back by low confidence and "increasing retail price inflation eroding disposable income already constrained by low earnings growth".Inflation is becoming a growing headache for the Bank of England, although policymakers there have been reluctant to push up interest rates due to fears of a double-dip recession.

Earlier this month, the Fraser of Allander Institute warned that consumer spending could remain low this year with Scots holding off spending billions of pounds in the high street because of slumping confidence.

The institute believes a double-dip recession can be avoided north of the Border, but warns of a long slow road back to the economic good times.