Bill Jamieson: Pessimism greets spring in Chancellor’s step

It didn’t take long for Scotland’s business organisations to puncture the sanguinity of Chancellor Philip Hammond’s Spring Statement last week.

A pro-European protester outside the Houses of Parliament. Picture: Matt Dunham/AP
A pro-European protester outside the Houses of Parliament. Picture: Matt Dunham/AP

He reeled off benign forecasts of modest economic growth steadily improving over the next five years and the Treasury coffers being gradually replenished. What’s not to like?

But it’s not at all the picture of the real economy that emerges from the normally cautious and measured assessments from the Scottish Chambers of Commerce and the Federation of Small Businesses Scotland.

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“Shambles”, “disastrous”, “disruptive”, “frustration” and “dithering” were the words that leapt out from the reactions of these two organisations to the tumultuous events at Westminster in the past week.

These reactions might be dismissed as foaming water under the bridge were it not for the fact that yet further uncertainty and delay lie ahead – and the possibility that the European Commission might insist on extending the Brexit withdrawal timetable by as much as 21 months.

Colossal damage has already been inflicted on business confidence and investment planning over the past 33 months. Now the prospect of a prolonged further extension must chill the business world to the marrow.

It is less Brexit itself that is the problem than the agonising length of irresolution and uncertainty that has prevailed since June 2016. Behind the Chancellor’s projection of a UK economy growing by just 1.2 per cent this year and failing to reach even two per cent growth over the following four years is a slump in business spending on machinery, factories and investment.

These are commitments that need to be made for any growth recovery to be possible. But barring some startling resolution to the Brexit imbroglio over the next two weeks, it is hard to see how any “deal dividend” can be sustained.

Westminster posturing and dither is coming at a crippling cost to business, with casualties mounting in the small and medium-sized firm sector. Liz Cameron, head of the Scottish Chambers of Commerce, said: “It is a sign of just how desperate the situation is now that the vote to allow the delay of Brexit is the best solution to this shambles.

“The last thing business needs is more indecision, delay and worry over the UK’s position in Europe. Urgent action is required to begin reassuring businesses that a disorderly and disruptive exit from the European Union will be prevented.”

The Prime Minister’s second defeat for her Withdrawal Agreement, she declared, “has only added to the growing frustration and disappointment felt by business communities across the country. Firms have shouldered the burden of uncertainty for too long, and the result will further impact on our capacity to trade, invest and hire.”

As if not to be outdone, the FSB chairman, Mike Cherry, weighed in with an excoriating verdict of his own. Parliament, he declared, must have “a clear and coherent plan to get us out of this mess. There is absolutely no point extending uncertainty if all we get is more dithering, debate and political games. We would only be avoiding a cliff edge on 29 March to then face another further down the road.

“As the Westminster shambles have played out, pragmatism has been in short supply. This is needed now more than ever. Wherever MPs fall on the political spectrum, small businesses need them to stop playing games and come together in a genuine show of unity to find a solution that protects businesses, communities and the economy.”

Earlier last week the FSB released its latest quarterly business index survey showing that confidence among smaller firms remained negative in the first three months of the year – minus 5.0 – down from a reading of plus 6.0 in the same period last year.

This marks the third consecutive negative reading. Such sustained quarter-on-quarter pessimism is a first for the index, launched in the first quarter of 2010. And 70 per cent of small firms do not expect their performance to improve in the coming three months.

Though Brexit uncertainty is weighing heavily on small businesses, rising costs continue to flag the domestic economy as the number one barrier to growth. More than half (58 per cent) say it is stifling ambitions, up from 55 per cent in the first three months of last year.

Elsewhere, the proportion of small exporters reporting a decrease in international sales this quarter has hit a two-and-a-half-year high (27 per cent). Four in ten say exports are flat. “We small business owners tend to be an optimistic bunch,” said Cherry “The persistence of this current wave of pessimism is unheard of. Even in the wake of the crash, when the economy was well and truly on the ropes, we didn’t see negativity take hold like it has now.

“Small firms still have no idea what regulatory framework they’ll be working to… Not only does the political stalemate surrounding Brexit make it impossible to plan, it has also distracted from the domestic policy agenda.”

At least the FSB got some relief from the Chancellor with action on the late payment crisis. He has responded to calls for large firms to assign non-executive directors with specific responsibility for supply chains, strengthening enforcement action taken against repeat poor payers.

“We’re more than a year on from the collapse of Carillion,” said Cherry. “Now is the time for the government to crystallise its plan to tackle our late payment crisis once and for all,”

A further prolonged delay on Brexit? That would be a recipe for a zombie economy, with business confidence being smothered in a fog of uncertainty. The worst outcome would be for the UK to be stuck in a limbo “half in, half out” state for the foreseeable future.

And with Brexit uncertainties undimmed, the Bank of England’s Monetary Policy Committee is likely to vote unanimously to keep interest rates unchanged at 0.75 per cent when it meets on Thursday. The marked slowdown in the economy in the final three months of last year – broadly the result of Brexit uncertainties and a weakening global economy – has removed the case for a near-term rise. And falling consumer price inflation – already below the Bank’s target rate – is a further reason for no change. Rates could well be cut if there is a no-deal Brexit.