Amid the doom and gloom, there are signs of hope in the Scottish economy, says Bill Jamieson.
Sixteen months on from the Brexit referendum and there’s no shortage of towels to throw in the ring. Gloomy forecasts abound. The Brexit talks are in deadlock. Businesses are struggling in a fog of uncertainty.
Now comes a report that £30 billion could be wiped off the Scottish economy on a ‘no deal’ Brexit. According to the London School of Economics, Aberdeen and Glasgow will suffer more than most and the UK overall could lose as much as £430 billion over the next 30 years.
Quaking in your boots? Minded to throw yourself off a cliff? Well, hang on in. There’s no doubt that households are feeling the pinch from higher inflation; that wage rises are still subdued; and on growth, we could – and should – be doing much better. But there are signs, too, that we are doing better than the Gloomsters suggest and our prospects are far from bleak.
This week the Scottish Chambers of Commerce has come out with a notably upbeat assessment showing optimism among most Scottish businesses continuing to improve, reaching levels higher than a year ago in construction, financial and business services, manufacturing, and tourism.
Across the UK, employers are still recruiting – with hiring intentions strong for full-time, permanent jobs rather than temporary posts – and this when employment is at a multi-year high. The latest figrues on Gross Domestic Product show the UK economy grew by a better than expected 0.4 per cent in the third quarter – hardly the slowdown many had feared, boosting hopes of a spending boost in the Autumn Statement.
Oh, and housing data analysts at Hometrack report the Scottish housing market has accelerated, with Edinburgh recording the fastest house price growth of all UK cities, overtaking northern cities such as Manchester and Birmingham.
There are areas of marked weakness such as productivity, while the roll-out of sweeping welfare reform has left some low-income households waiting six weeks to receive benefits. But there is an underlying resilience in many areas that flies in the face of so much handwringing and despair. The notion that Scotland is destined to suffer unduly is contestable.
The survey by the Scottish Chambers of Commerce and the Fraser of Allander Institute shows Scottish businesses “remaining resilient in the face of significant policy uncertainty and a fragile Scottish economy which continues to grow at below trend levels”.
Tourism was a stand-out performer over the third quarter due to the weak pound’s effect on foreign holidays. The financial services sector also appears to be building on its strong start to 2017. Activity in construction continues to remain relatively fragile despite improving optimism.
A big problem highlighted by co-author Professor Graeme Roy is not that employers are cutting back and shedding labour in the face of Brexit uncertainties. It is that record high employment levels are leading to recruitment difficulties in most sectors.
Neil Amner, of Anderson Strathern, chair of the SCC’s Economic Advisory Group, says while the survey results “point to a broadly positive picture”, the retail sector in particular continues to show decreasing sales, with cash flow and profitability challenges.
He, too, highlights recruitment problems. “Businesses in sectors such as manufacturing”, he argues, “must do more to reimagine their workplaces to attract future talent, by focusing on increasing autonomy and flexibility in their working practices.”
As for the latest GDP figures, comfort can be taken that the UK economy has picked up a little speed, more than most had expected and encouraging after so many warnings that the vote to leave the EU would cause a severe downturn. Of that, there is so far little sign.
Growth edged up to 0.4 per cent quarter-on-quarter from 0.3 per cent. Performance has been lifted by markedly improved industrial production that outweighed a downturn in construction activity. Growth is expected to pick up gradually as 2018 progresses and the squeeze on consumers eases. Net trade is expected to make a modest positive contribution to growth as exports benefit from healthy global activity and a competitive pound.
Such is the underlying strength of our performance that financial markets are now indicating an 84 per cent probability that interest rates will rise from their record low of 0.25 per cent when the Bank of England’s Monetary Policy Committee meets in November. The numbers could tip chancellor Philip Hammond – enjoying the lowest September budget deficit since 2007 – to signal a spending boost when he delivers the Autumn Statement.
As for that consumer squeeze, this, says EY Item Club economist Howard Archer, “should ease appreciably during the course of 2018 as inflation likely heads back to two per cent and earnings growth gradually strengthens”.
Problematic though the outlook for Scottish retail remains, sales have still been growing. Total sales in Scotland last month rose by 1.1 per cent compared with September 2016. Food sales saw average growth of 2.7 per cent over 12 months, the highest since December 2013.
Economists had feared the UK’s employment surge would stutter. But employment data group CV-Library reports a 12.2 per cent rise in UK advertised job vacancies in the third quarter compared with a year ago. The top ten cities for jobs growth included Aberdeen, Edinburgh and Glasgow. And there is better news on Scotland’s housing market after fears increases taxes may have sparked a lasting downturn. Activity has also recovered: the number of sales north of the border increased by 20 per cent in the past three months, compared with the same period last year; in England it was 14 per cent. Slow growth we have, and a continuing squeeze on incomes. But there is also plenty to give everyone hope.