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Ulster Bank

Snowy roadLast month’s cold weather hit Scotland’s economic recovery hard. Two surveys have confirmed just how badly business was affected. The first, the Bank of Scotland’s monthly Purchasing Manager’s Index, reported that businesses had recorded a sharp drop in new orders and output.

The snow meant that consumer spending fell, which then hurt the service sector in particular. But manufacturing survived better than might have been expected. Demand from abroad held up, with some manufacturing companies able to take on new staff. But overall, new business fell throughout the Scottish private sector.

The index covers around 600 companies. They’re asked to provide figures about their business. December’s results were among the weakest for almost two years. The private sector economy contracted in the final month of 2010, with the index falling almost 10 points from its position in November.

Donald MacRae, chief economist at Bank of Scotland, said: “December was a difficult month signalling a weak last quarter of 2010 for the Scottish economy. However, there were encouraging signs of continuing robust export demand.”

He points out that there are other worrying trends. Costs are continuing to rise for many companies, as a result of higher fuel and raw material prices. The report also warns that these higher costs could squeeze profit margins even more if companies are not able to them pass on.

The other report comes from Northern Ireland. Ulster Bank is part of the RBS Group and its business activity index suggests that Scotland displaced the Province at the foot of the UK regional performance table. It’s the first time since February 2009 that Northern Ireland hasn’t held that dubious position.

Ulster Bank’s chief economist, Richard Ramsey, said there had been a decline in manufacturing output and new orders, blaming the “extreme weather conditions. All UK regions, to a greater or lesser degree, have been affected by the weather with Scotland appearing to be the region hit hardest.”

He too is worried by inflationary trends with rising oil and raw material prices have an impact on employment.