Here’s a paradox: if Scotland’s economy is performing so poorly, and with Brexit widely predicted to damage business and investment, why does better news keep breaking through?
Last week – and not for the first time – came fresh pointers to show that in key areas our economic conditions are improving. Let’s not get carried away with this data. Our economy is still struggling well below par, we are trailing the rest of the UK, productivity readings are poor and there is no sign of an end to the crippling uncertainty for business due to the lack of progress on Brexit.
But evidence continues to confound the pessimists – and all those dire forecasts on employment, business activity, investment, earnings, house prices and overall business confidence. The SNP administration has been prominent among those constantly warning of our gloomy prospects.
Now look at the data that emerged last week:
In Scotland the portion of people in work in the first three months of the year rose to 74.7 per cent, while unemployment fell to 4.3 per cent.
Scotland’s private sector has recorded its strongest rate of expansion since last October. The latest IHS Markit Scotland PMI reports that April’s improvement was supported by a “solid inflow” of new business and stronger employment gains. This would appear to contradict the recent claim by Capital Economics that Scotland’s small and medium-sized businesses are more pessimistic in their outlook on the UK economy than those in any other UK region.
Across the UK as a whole, numbers in work increased, unemployment fell, while the numbers of those “economically inactive” also declined. All told, there were 32.3 million people in work, 396,000 more than for a year earlier.
The UK employment rate at 75.6 per cent was the highest since comparable records began in 1971. Unemployment was down 116,000 on a year earlier, with the percentage down to 4.2 per cent, the joint lowest since 1975.
Average weekly earnings have risen by 2.9 per cent and are up by 0.4 per cent after adjusting for inflation – the squeeze on incomes now looks to be over.
Contrary to warnings of a Brexit-induced decline in asset prices, the housing market in Scotland has continued to advance. According to Bank of Scotland data, the average price of a semi-detached property here has risen by more than £40,000 in the past five years, equivalent to £694 per month. Flats have seen average prices rise by £26,995 (26 per cent) since 2013, while detached homes recorded an increase of £43,131 (nine per cent).
Investor confidence was also feared to fall. But last week the FTSE 100 hit a fresh record close. Nor was this confined to the shares in the global behemoths: the FTSE 250 Index, more reflective of medium-sized UK companies, also hit an all-time high.
For the moment at least, we have certainly not enjoyed the robust and sustained recovery many hoped for as we emerged from the great financial debacle of 2008-09. The continued reluctance of the Bank of England to raise interest rates testifies to that.
But nor have we suffered the worst of the Brexit doom-mongering that is still prevalent across much of Westminster and Holyrood politics and the broadcast media.
The strength of labour market data is particularly striking. For many the figures on numbers in work and unemployment are better indicators of the health and strength of the economy than GDP data – subject to constant refinement and revision.
There are two prominent concerns across business now. One is the continuing shortage of skilled labour, this running hand in hand with remarkably high numbers for unfilled vacancies. According to the ONS, there are now 806,000 job vacancies in the February-April period, 17,000 more than a year earlier. Many of these are in the services sector – hotels and catering especially.
This would suggest either that employers are finding it hard to find even relatively low-skilled labour or that wages are not high enough to attract job applicants. This in turn would indicate continued upward pressure on pay. In any event, much still needs to be done on skills training at all levels of the labour market.
The second is the worrying rise in business insolvencies, exacerbated by freezing winter weather, continuing failures and closures in retail and the collapse of infrastructure giant Carillion and other prominent companies in this sector, where many thousands of small firms are dependent on work being outsourced.
According to the Accountant in Bankruptcy figures, corporate insolvencies in Scotland rose 28 per cent in the January-March quarter compared with the immediate previous three months and by a whopping 67 per cent compared with a year ago. While still well below the levels recorded in 2011-12, they are back to where they were at the end of 2015.
Tim Cooper, chair of the insolvency and restructuring body R3 in Scotland, says: “R3’s members reported that a number of companies sought urgent advice in the wake of the Carillion liquidation… Any large insolvency can lead to further troubles in the supply chain; support from the financial sector, as we have seen in the Carillion case, can, however, help to soften the blow for counterparties, with repayment dates pushed back and loan facilities extended.
“Another key factor could well have been the repeated bouts of severe weather which froze activity in our high streets, roads, and on construction sites.
“Many companies are facing a complex trading environment. Staff costs are rising; there are concerns about the availability of staff after the UK leaves the EU next year; new technologies promise a productivity boost, but investing in as yet unproven assets and software can be risky. There is also the prospect of at least one interest rate rise later this year”.
No lack, then, or worry points for business. But we are nowhere near the deep downturn that many had predicted, and there are signs of a gathering, if slow, recovery in activity and prospects. This needs to be more fairly reflected in political commentary than is currently the case.