SCOTTISH manufacturers are increasingly optimistic about prospects for profitability, but services companies north of the Border suffered a sharp slowdown in domestic sales growth in the first quarter, a key survey reveals.
British Chambers of Commerce, publishing the survey today, declares its findings signal the UK economy continues to grow at a solid pace.
But BCC chief economist David Kern warns: "UK growth is still unduly reliant on consumer spending, driven by a buoyant housing market and a falling savings ratio. Unless investment and net exports can make a bigger contribution to growth, there is a risk that the recovery will stall."
The survey signals Scottish manufacturers continued to enjoy significant growth in sales and orders in the UK market in the first quarter. They remained optimistic about prospects for turnover, and were far more upbeat about the outlook for profitability on a 12-month view than in the previous quarterly survey.
Overall, Scottish manufacturers were firmly in recruitment mode in the first quarter, the survey shows. They signalled employment in the sector would continue to grow this quarter, but at a slower pace.
However, while the survey signals that Scottish manufacturing is now enjoying better times, it shows growth in domestic and export orders and sales for firms north of the Border is adrift of that in the sector in the UK as a whole.
In spite of the surge in their optimism about profitability on a 12-month view, Scottish manufacturers are less upbeat on this front than their peers in any other nation or region of the UK.
And they are less upbeat about the prospects for turnover than manufacturers in most other nations or regions of the UK. Only in Northern Ireland and south-west England are manufacturers less upbeat about the 12-month outlook for turnover.
Subtracting the proportion of respondents reporting a fall from that experiencing a rise, while adjusting the findings to give larger companies a greater weighting, BCC's survey shows a balance of 31% of Scottish manufacturers achieved a rise in sales in the UK market-place in the first quarter. This was down slightly from 33% in the fourth quarter of 2013, and adrift of a weighted balance of 38% for the UK as a whole, but it pointed to solid growth.
A weighted net 29% of Scottish manufacturers reported a rise in domestic orders in the first quarter, down slightly from 32% in the previous three months and adrift of a reading of 42% for the UK as a whole.
Meanwhile, a weighted balance of 30% of Scottish manufacturers reported a rise in employment in the first quarter, similar to the figure of 31% for the UK. A weighted net 23% of Scottish manufacturers projected growth in employment this quarter, adrift of a reading of 40% for the UK as a whole and pointing to a slowing in the rate of growth of the sector's workforce in Scotland.
A weighted balance of 22% of Scottish manufacturers forecast an improvement in profitability in the coming 12 months, up from 2% in the previous quarterly survey. However, in the UK as a whole, a weighted net 50% of manufacturers forecast better profitability in the next 12 months.
And the weighted balance of 48% of Scottish manufacturers predicting a rise in turnover on a 12-month view in the latest survey is adrift of a reading of 67% for the UK as a whole.
A weighted net 3% of Scottish services companies recorded a rise in domestic sales in the first quarter, way adrift of a corresponding figure of 20% in the previous quarterly survey and a UK reading of 35%. The weighted balance of Scottish services firms achieving a rise in domestic orders improved in the first quarter, to 13% from 8% in the preceding three months.
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: "The latest survey results for Scotland are mixed. Overall, the manufacturing indicators are in a healthy position and while some service sector results were strong, such as the level of domestic orders, the reported decrease in the domestic sales balance is concerning.
"Although economic recovery continues, it is clear that some fragile economic conditions still persist."
Scottish services companies again signalled stagnant employment in the sector north of the Border. This is in contrast to strong growth in the services workforce, and a belief this will continue, in the UK as a whole.
A weighted net 15% of Scottish services companies projected a decline in profitability on a 12-month view. A weighted balance of 5% had forecast a worsening of profitability in the previous quarterly survey. In the UK as a whole, a weighted net 47% of services firms forecast an improvement in profitability on a 12-month view.
Scottish Chambers has noted in the past that the survey sample of services companies in Scotland includes a high proportion of retailers, with the business services sector, which includes accountancy and law firms, not represented.