The latest Scottish Chambers of Commerce (SCC) Quarterly Economic Indicator survey for the final three months of 2019 shows businesses “in a period of stasis” with subdued levels of confidence and investment. “Despite signs of resilience,” it says, “confidence levels remain weak relative to their long-term norms, with manufacturing, retail and tourism in negative territory for outlook.” Business investment levels remain weak across all sectors.
The Federation of Small Businesses (FSB) in Scotland said last week that the Scottish Government’s refreshed Economic Action Plan “will only deliver if backed by concrete pro-business measures” in the forthcoming budget. “The enterprise support landscape”, it adds, “ is littered with countless online ‘one-stop shops’. So, to be effective, we need to further de-clutter the landscape by reducing the number of publicly funded, business-facing websites.”
Meanwhile the Scottish Retail Consortium argues that “what’s missing is a stronger emphasis on keeping down the cost of doing business” to stimulate investment.
Contrast these with UK-wide data released last week. The UK composite purchasing managers’ index (PMI) rose to a 16-month high, causing analysts to query whether the Bank of England may opt for a widely predicted cut in interest rates to 0.5 per cent when the Monetary Policy Committee meets this week. The PMI for services showed the sector returning to growth for the first time since August 2019.
IHS Markit’s chief economist, Chris Williamson, says: “The survey data indicate an encouraging start to 2020 for the UK economy. Output grew at the fastest rate for 16 months amid rising demand for both manufacturing and services, suggesting business is rebounding after declines seen late last year.” Business expectations of future growth, he added, are at their highest since mid-2015.
Meanwhile the January CBI industrial trends survey points to modest pick-up in UK manufacturing activity, with new orders reaching a five-month high and output expectations for the next three months turning positive for the first time since last July.
Strikingly, the CBI’s separate quarterly survey for January showed optimism in the manufacturing sector spiking to a six-year high, with a pick-up in the balance of investment intentions, from minus 44 per cent in the October survey to plus five per cent. It also found a record proportion of firms expecting to authorise capital expenditure to expand capacity.
It is impossible not to be struck by the contrast between business commentary UK-wide and that here in Scotland. The SCC survey, conducted with the Fraser of Allander Institute, is notably downbeat. Referring to “worryingly low levels” of business confidence in Scotland, the SCC’s president and chairman of the Scottish Business Advisory Group, Tim Allan, says: “The decisive election result at Westminster is yet to provide the clear direction that business communities are looking for. Of particular concern to businesses will be the extent of divergence the UK government plans to adopt between UK and EU regulation. This continued uncertainty, coupled with a continued sense of ‘election-style’ policy making, has the potential to disrupt business planning, supply chains, as well as negatively impacting on job creation.”
Across Scotland’s key sectors, he says the SCC survey finds few grounds for optimism.
On construction: “Business confidence amongst construction firms is at its lowest point in almost three years with contracts at their lowest level since Q3 2017”.
On manufacturing: “Business confidence has been on a downward trajectory over a series of quarters, and is significantly below the five-year average. An increasing number of firms continue to report recruitment difficulties.”
On retail and wholesale: “The festive boost for the sector did not deliver, with sales flatlining and business confidence lower than the average for the quarter. Prolonged periods of discounting, changing consumer habits and ‘Black Friday’ style deals impacted the overall performance of companies.” The sector reported business rates as a leading concern.
On tourism: “Business confidence in the sector has fallen to the lowest level in nine quarters, and well below the five-year average, whilst negative trends for cash flow, profits and sales present cause for concern.”
On financial and business services: “With around half of firms expecting to see no changes to levels of investment, it’s clear the sector is continuing to place key investment decisions on hold… Recruitment difficulties continue to weigh on the minds of companies as attracting suitable talent continues to take its toll.’’
Little wonder, perhaps, that the Scottish Government leapt on an index of Social and Economic Wellbeing last week as a more positive measure of Scotland’s condition. But here, too, the picture is far from unblemished.
As the economist John McLaren notes, Scotland experienced the joint biggest fall (along with Wales) across 32 OECD economies in the organisation’s index, moving down five places from 16th to joint 21st
Within the UK, England saw no change in its ranking remaining a little above mid-table (ie second quartile) while Scotland fell into the third quartile of countries, due to a decline in its education and income performances. Scotland’s very poor life expectancy remains its weakest area of performance. “The relatively poor Scottish performance in terms of education and health”, McLaren comments, “suggests that changes may be needed to the, still young, devolved political system.
“ Such changes should involve strengthening the challenge and scrutiny roles both within and outwith the Parliament… The results highlight the fact that greater political devolution alone does not easily lead to an improving performance in key areas of wellbeing. In fact, unless proper supporting bodies are also cultivated, it can lead to a weakening in some important aspects of policy development”.
Much food for thought, then, on all survey fronts.