Scotland’s businesses should be planning for a recession as a no-deal Brexit scenario becomes increasingly likely, says a report published today by KPMG.
According to the Big Four accountant’s latest quarterly economic outlook, a disorderly exit from the European Union on 31 October could prompt a four-quarter recession with UK gross domestic product (GDP) contracting by 1.5 per cent next year.
However, a Brexit deal that clears up some of the uncertainties about the UK’s future trading relationship with the EU could lead the UK economy to perform better in 2020 than previously expected – at 1.5 per cent up from 1.3 per cent – despite constraints such as a slowing global economy.
KPMG said the analysis suggests a no-deal Brexit could significantly dent exports in 2020 amid delays at the border and confusion over regulation, while consumer spend would be squeezed and business investment remain depressed – while a deal could see the pound leap by as much as 15 per cent and enable businesses to revive their investment plans
Catherine Burnet, senior partner at KPMG in Scotland, said the report is identifying weaknesses in key sectors in Scotland, such as manufacturing and services.
She said: “In other areas, including retail, the downward trend has slowed, but the long-term outlook remains concerning. It reaffirms the need for Scotland’s businesses to plan now, if they haven’t already developed a strategy. The threat of a no-deal Brexit has becoming increasingly real, as has the possibility of domestic political and policy change.”
Yael Selfin, chief economist at KPMG UK, added: “With the Brexit debate poised on a knife-edge, the UK economy is now at a crossroads. It is difficult to think of another time when the UK has been on the verge of two economic outturns that are so different, but the impact of a no-deal Brexit should not be underestimated.
“Despite headwinds such as the slowing global economy and limited domestic capacity, the UK economy now has the potential to strengthen over the next 12 months.
“A no-deal Brexit could put paid to this, triggering the UK’s first recession for a decade.”
Separately, accountancy body ICAEW said its business confidence index in Scotland is in “marginally” positive territory for the first time in a year. The third-quarter score of +2.8 was above the UK average of -10.3 – but Scottish firms are experiencing difficult sales conditions while challenges are curbing investment plans.