Bill Jamieson: Small voice drowned out by high stakes drama

Financial statistics don't bear out the present sense of crisis. Picture: Isabel Infantes/Getty
Financial statistics don't bear out the present sense of crisis. Picture: Isabel Infantes/Getty
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Now here is a mystery. Amid the parliamentary shambles of Brexit last week, there came a near apoplectic warning from two of Britain’s biggest business organisations on the colossal damage that continuing division and uncertainty is inflicting on business confidence and investment.

A joint statement from the Confederation of British Industry and the British Chambers of Commerce railed against the failure of MPs to find a way out of the Brexit morass.

Separately, the Federation of Small Businesses unveiled its latest survey showing export intentions at their lowest point in nine years, and the proportion of small firms reporting falling revenues at a record high. And from the FSB Scotland came news that its Scottish business confidence index fell to a new low in the first three months of the year and has not registered a positive reading since the second quarter of 2018.

Yet in the financial markets, there has been little sign of a confidence collapse or sell-off. After MPs voted down the Prime Minister’s withdrawal deal for the third time last Friday, the FTSE 100 index of the UK’s leading companies closed at 7,280. Far from collapsing, it has risen by around nearly 9 per cent since early January, while it has rallied by more than 25 per cent on its level before the fateful EU referendum vote in the summer of 2016.

Nor has the FTSE 250 Index, comprising medium-sized companies with a mainly UK-facing trading profile, suffered a fall. It, too, is up by over 9 per cent since the start of the year, and by 19 per cent since the summer of 2016.

Now, it could be fairly argued that both indices might have been substantially higher but for Brexit. And there is clear evidence that international investors have been avoiding UK assets because of Brexit. But it seems that, as far as the largest UK-domiciled companies are concerned, the mood is more one of annoyance and irritation than the deep despair expressed by the CBI and BCC. Many of the FTSE 100 firms, of course, derive most of their earnings from overseas and are less affected by the prolonged uncertainty that the Brexit issue has inflicted on tens of thousands of UK-facing firms.

The present political chaos has been compared to that at the time of our expulsion from the Exchange Rate Mechanism on 16 September, 1992. The date has been seared in the national memory as Black Wednesday, and was to lead to the collapse in confidence of the Conservative government.

Yet the impact of the Brexit chaos has been nothing like as severe. Back then, interest rates were first raised to 10 per cent, then 12 per cent, and finally 15 per cent in a desperate attempt to halt the fall in the pound.

Yet last week, in spite of frenzied reports early last week that sterling had “tumbled” on news of opposition to the Prime Minister’s deal, the actual fall was 0.5 per cent, to $1.3102 against the dollar. But for most of the past year, the pound has been hovering around the $1.30 mark. Indeed, in early January it was changing hands at $1.26. There has not been a collapse in the pound. Nor has there been resort to emergency hikes in interest rates. In fact, the latest signals from Bank of England governor Mark Carney are that rates at 0.75 per cent are likely to remain unchanged for the foreseeable future.

Yet there is no denying that today, small firms have been badly hit – pausing recruitment plans, halting investment and scaling back exports, hamstrung by political uncertainty. There has also been concern that UK exports to the EU have been lacklustre. But that is more likely to be due to slowing growth across the region, with Germany edging close to recession.

The latest European Commission monthly survey released last week showed economic sentiment in the Eurozone weakened more than expected in March, mainly due to a bleaker outlook among manufacturers and services, suggesting first-quarter growth could be lower than previously thought.

According to ING economist Bert Colijn: “The decline… shows that business confidence continues to suffer and that the start of a growth recovery hasn’t really happened so far. First quarter GDP is therefore set to disappoint again.”

Separately, the Commission’s business climate index, which helps point to the phase of the business cycle, fell to 0.53 in March from 0.69 in February. The mood in both key sectors of the Eurozone economy – industry and services – turned out worse than forecast. The decline in services sentiment is also a serious concern for many.

The fact the Eurozone is making heavy weather of a global economic slowdown is of little consolation to businesses here. The FSB’s Scottish Small Business Index fell 1.8 points to minus 34.5 in the first three months of 2018.

FSB’s Scotland policy chair, Andrew McRae, says: “Uncertainty associated with Brexit is being piled upon rising overheads, shaky revenues and squeezed margins. It’s hardly surprising that Scotland’s firms aren’t brimming with confidence.”

Across the UK as a whole, a separate FSB survey finds that the proportion of small businesses reporting falling revenues is at a record high. It is calling on the UK government to follow the example set by Ireland and the Netherlands by giving smaller firms vouchers that can be spent on preparing for future trade scenarios.

Revenues have tumbled among small firms over the past three months. More than a third (37 per cent) say revenues are down – an all-time high – and a quarter (25 per cent) report a flat-lining.

One prominent reason why small firms’ morale is at rock bottom compared with the global behemoths is that SMEs here are beset with a range of woes. This week they will be hit with a triple whammy of Making Tax Digital, business rates hikes and higher auto-enrolment pension contributions. “These fresh burdens”, says the FSB’s Mike Cherry, “couldn’t be coming at a worse time. We’ve already seen the UK business population drop in 2018. If this government’s not careful, we could see a further contraction this year.”

Who’s been speaking for this business constituency? Sadly, all too few, I fear.