Bill Jamieson: Keeping our heads as politicians lose theirs

Output is healthy now the economy has recovered from the stormy spring
Output is healthy now the economy has recovered from the stormy spring
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Does political chaos matter? Is it a blight or an irrelevance? With all the raucous clamour and division in UK politics for the past 18 months, the UK economy should surely be in a tailspin.

What else could we expect with company expansion put on hold, foreign investment drying up, exports in a nose-dive, and business confidence shot to pieces with a never-ending downpour of gloomy forecasts and warnings of catastrophe and disaster.

It’s certainly true that our GDP performance is depressed and well below the long-term average. Growth in foreign direct investment has slowed. And business is heartily sick and tired of all the confusion and uncertainty that the wrangling over Brexit has caused. With just eight months to go for the UK’s formal exit from the EU, there is still no clarity over what our trade relations and border protocols are going to be.

So “politics” – the constant wrangling and feuding at Westminster with senior ministerial resignations and talk of a challenge to the Prime Minister this autumn – has to be a blight, most definitely. Growth and investment has been seen to be at high risk, with warnings from leading corporates on the consequences of a “no deal” Brexit.

A “clean” Brexit had offered the prospect of the UK being free to strike trade deals around the world – countries and regions set to grow more quickly than the EU over the next 20 years. Thus of particular concern in the past week has been the UK’s trade relationship with the US – our biggest single country trading partner. President Donald Trump has warned that a US-UK trade deal now looks highly unlikely as a result of the proposed compromise Chequers agreement and subsequent White Paper.

Much is at stake. Not only is America the largest source of foreign direct investment as a single country – the UK comes second, behind the Netherlands, as a place that American companies invest, accounting for 13 per cent of the total – but the UK is also a critical market for US exports, worth some £40 billion annually.

What a curse all the political wrangling has surely been. But what difference has it really made in the world of business investment and decision-making? Not that much – so far.

Two months ago the Department for International Trade reported that the UK’s Foreign Direct Investment (FDI) performance in 2017 was solid: the UK attracted six per cent more FDI projects than in 2016, and retained its place as Europe’s number one destination, with total projects rising from 1,138 to 1,205.

And despite a slowdown in the pace of FDI growth, the UK also remained the leading recipient of FDI-related employment in Europe, creating an estimated 50,196 jobs, a 6 per cent increase over 2016 and over 19,000 more than second-placed Germany.

How stands Scotland and its ability to attract FDI? According to the latest EY Investment Attractiveness Survey, Scotland remains the UK’s most attractive location for FDI outside of London. The FDI growth rate in Scotland is higher than across the UK as a whole, while the number of FDI projects has increased.

Scotland, it finds, has firmly established itself as a key location for foreign investment, attracting 141 projects in 2017-18, up 7 per cent on the previous period, and 4,148 new jobs.

The survey highlighted:

• An increasing share of Scotland’s UK FDI

• The highest number of HQs in Scotland for a decade

• A 70 per cent rise in R&D projects, proving Scotland has a leading edge in science and technology

• FDI job creation up by a massive 104 per cent – reflecting a shift towards larger-scale projects

• Growth of the business services sector, while the UK’s has shrunk

• A 56 per cent increase in digital FDI projects, the second largest sector for Scotland

• Manufacturing FDI projects increased by 25 per cent.

The survey results, EY concluded, “illustrate that Scotland continues to attract record numbers of inward investment projects… [its] ability to attract FDI proves that its assets continue to shine through on a global scale.”

Meanwhile, what of UK domestic investment? Latest figures on Gross Fixed Capital Formation (GFCF) from the Office of National Statistics covering private and public sectors, manufacturing, construction, services and extractive industries, showed that, contrary to the received wisdom that investors have been fleeing the UK, investment grew by 1.1 per cent in the fourth quarter of 2017, to a total of £84.1bn. Over the course of 2017 it grew by 4 per cent compared with 2016. This was higher than for any other G7 country – with Italy following on 3.7 per cent and France on 3.5 per cent.

Business investment – which excludes the public sector and house building – accounted for £46.2 billion of that £84bn total. Over the course of 2017, business investment in the UK grew by 2.6 per cent.

Meanwhile, the economy continues to gain traction after a miserable, weather-hit performance in the first three months of the year. Output rose 0.3 per cent in May, lifting the rolling three-month expansion to 0.2 per cent compared with zero growth in April. The economy looks on course to have expanded by 0.4 per cent in the second quarter. Indeed, such is the confidence that this recovery will continue that most commentators believe a rise in interest rates by the Bank of England’s Monetary Policy Committee in August is looking ever more certain.

All this is not to say that “politics” don’t matter or that the daily disputation at Westminster is not a source of frustration for those seeking clarity and firm decision. But there appears a large swathe of business that has not been reduced to a state of paralysis by the nightly political news and is quietly “getting on with it”, seeking to push ahead despite all the angry rhetoric and confusion.

Without this, we would indeed be in a very sorry state.