In the pantheon of meaningless phrases, is there any that ranks higher than “we are where we are”? It’s often invoked to move a discussion along and curtail examination of where we actually are. But today we don’t know “where we are” at all – not on Brexit, not on growth, not on spending, not on interest rates and certainly not on prospects.
We were warned that as a result of the Brexit vote we were heading for recession. But the stock market has rallied, consumers have kept spending, unemployment has kept falling and now forecasts for growth in the third quarter are being upgraded.
The data is not so encouraging in Scotland, though our jobless rate has now fallen to below that of the UK. And the latest Business Trends Report from BDO Scotland pointed to signs of recovery in business confidence.
But for the UK overall, the signs certainly look more positive. Recent Markit surveys for services, manufacturing and construction all pointed to an upturn since July. The visible trade deficit improved as the weaker pound since the referendum appears to be helping export orders.
Last week the Bank of England’s Monetary Policy Committee said it “now expects less of a slowing in UK GDP growth in the second half of 2016”. The Bank’s judgement is that growth in the current July-September quarter will now be between 0.2 per cent and 0.3 per cent – markedly higher than its August forecast of 0.1 per cent.
Those who predicted the possibility of a recession following a vote to leave the EU – and they included Bank of England Governor Mark Carney – are having to revise their positions.
No need, then, for more monetary stimulus if things are perking up? Think again. After last week’s decision to hold interest rates the consensus conclusion from the Bank’s press conference was that a further cut to 0.1 per cent could come in November. It’s a rate that we would have once have associated with a national catastrophe or a Great Depression.
Then there is the fiscal stimulus which chancellor Philip Hammond has hinted may come in the Autumn Statement on 23 November.
So, if “we are where we are”, where are we exactly? More borrowing or less? Getting better or worse? On the mend or needing more medicine?
And what store can we place by a further cut in interest rates? There is a growing conviction that interest rates have now fallen as far as they can and that the rate cycle may already be on the turn in the US, which saw more positive data last week. Will rates really be lower for longer? Or should we be braced for a bump?
Given that it has been household spending and the consumer sector that has kept the UK economy ticking over, the latest figures showing weakening earnings growth do not augur well. “It therefore looks probable,” says Global Insight economist, Howard Archer, “that currently decent consumer purchasing power will be significantly diluted over the coming months as inflation trends higher and earnings growth is limited.” And he warns that it is “highly possible” inflation could move above earnings growth later in 2017.
It would help to know whether we are in a growth recession or a growth recovery. But the fact that we don’t know for sure explains the current conundrum in economic policy. For the moment we are awaiting for a lift in the Brexit clouds – though there seems little prospect of that in the immediate months ahead.
In Scotland, data signals have not been so positive – though there are signs of business resilience. Some reassurance came with figures last week showing unemployment in Scotland fell by more than 1 per cent over the past three months, taking the rate down to 4.7 per cent. And it was heartening to note Scotch whisky sales overseas have risen for the first time since 2013, with a surge in exports to India.
However, overall Scotland’s economic needle is still pointing to slow growth at best, and heavily dependent on consumer spending. This is why the 1.9 per cent fall in Scottish retail sales in August on a like-for-like basis is of concern. Non-food sales were down by 1.7 per cent: “uninspiring” was the verdict of Scottish Retail Consortium director David Lonsdale.
Policy prescriptions in Scotland are split – as they have long been split – between those arguing for more government spending on infrastructure and those putting greater emphasis on the need for cuts in the tax burden on business.
Given the marked reticence that has settled over CBI Scotland over the past 18 month, it has been left to the Scottish Chamber of Commerce to be the effective voice for business in Scotland.
“Our members have indicated that reductions in both VAT and the burden of Corporation Tax would be welcomed, together with a clear forward strategy of investment in the UK’s economic infrastructure,” said SCC chief Liz Cameron. “The Scottish Government also has the opportunity to head off some of the threat of the expected economic headwinds in 2017 by ensuring that next year’s revaluation in Scotland’s business rates results in a net benefit to Scotland’s businesses, enabling them to invest in jobs and growth.”
Meanwhile, some Scots firms are not waiting for Brexit clouds to clear but are moving ahead with investment and expansion. Edinburgh-based John Menzies has just agreed a deal to buy plane refuelling business Asig in a deal worth almost £153 million. The acquisition will strengthen Menzies Aviation’s offering at major international gateways such as London Heathrow, San Francisco, Denver and Los Angeles.
So while politicians wring their hands on Brexit worries, the more positive response in business – and particularly in the SME sector – is to chase opportunity and crack on. A familiar response, perhaps, but surely preferable to that vacuous refrain “we are where we are”.