Bill Jamieson: Why Keith Brown should pray for rain in economy

It's never cheerful to be told things are likely to get worse before they get better. But that's the prospect faced by Keith Brown, Scotland's new minister for the 'Economy, Jobs and Fair Work' (could there ever be a Ministry for Unfair Work?).

The heat is on for Keith Brown to tackle our poor employment figures. Photograph: John Devlin

It’s the likelihood that things may well get worse that offers the best hope for the new minister. And there are some helping hands for him reaching out from the gloom that could prove of great help to him.

Despite the extensive new powers on taxation and spending, Scotland’s economy remains closely dependent on the UK as a whole. Indeed the pulse rate here is seldom different from the UK – or different for long.

It’s the continuing downturn across the UK as a whole that is thus the biggest challenge for Keith Brown. But here more bad news may come to his aid.

Whichever way the EU referendum vote goes on 23 June, overall UK monetary policy will be under pressure to address a loss of economic momentum that was well in train before referendum politics came to dominate the headlines.

This is why there has been growing talk not just that an interest rate rise will be deferred well into next year, but that the next move from the Bank of England may be a rate cut.

There are two other “helping hands” that could come into play. There is a strong likelihood of a fall in the sterling exchange rate, reflecting the UK’s thumping UK £13.3 billion trade deficit in the first three months of the year, the largest since 2008. A sterling fall looks long overdue.

And the third is that there are continuing oil supply “outages”. These have caused the oil price to rally more than 70 per cent since its February low, helped by supply disruptions in Nigeria, Canada and some of the Gulf States. A firmer oil price would help steady nerves in the North Sea sector and stay the hand on further investment cutbacks.

All these are reasons why Brown should pray for rain. A persisting flow of bad news would prompt policy action and “helping hands” that would help him in the task of promoting future business growth and investment.

But there is much that has to be done for Scottish business on a micro level. And here Brown’s appointment has been welcomed in business circles – as has that of Fergus Ewing, now with a more focused brief on the rural economy and connectivity. That’s gone down well with the Scottish Federation of Small Businesses for whom the uneven roll-out of digital connectivity has been a big concern to members.

Ewing has also been attentive in his own connectivity with SMEs in recent years, taking the trouble to attend many gatherings. Farmers, and indeed all involved in rural businesses, particularly the increasing number of firms involved in food and drink innovation, processing and manufacture, also have cause to welcome this appointment. They are a vital part of Scotland’s economy – and growing in importance.

Both ministers will be under no illusions about the uphill task they face. Latest figures testify to the continuing loss of economic pace. Our growth rate was 0.4 per cent behind the UK last year. And in the first three months of 2016, unemployment in Scotland rose by 8,000 to stand at 169,000. Our jobless rate continues to be higher than that of the whole of the UK, at 6.2 per cent compared with 5.1 per cent.

The employment rate in Scotland also fell and is now 73.1 per cent compared with a UK average of 74.2 per cent.

Meanwhile, figures from the Scottish Retail Consortium show Scotland’s high street has suffered another slump in sales, with falls across all retail categories. Like-for-like sales dropped 3.3 per cent year on year in April, and online sales were down 2.6 per cent as we tightened the purse strings.

To date economic momentum in Scotland has largely been driven by infrastructure projects. Brown will continue with oversight here but will also be responsible for securing investment and supporting people into work, a role similar to that of the UK government’s Business Secretary.

But Scotland’s economy needs to broaden out from dependence on big infrastructure projects, vital though these have proved, and to embrace the SME sector. Colin Borland, head of external affairs for the Federation of Small Businesses in Scotland, says the latest figures on jobs “should trigger an amber alert for Scotland’s governments”.

“The decline in the oil and gas industry is obviously a factor – with the impact now being felt beyond the north of the country and the immediate supply chain. But, right across the economy, many small businesses are grappling with a raft of new regulatory changes, including the National Living Wage and new pension rules. These changes may be dampening recruitment intentions in our vital service sector.”

A continuing stabilisation of the oil price would help steady seriously frayed nerves in Aberdeen. Last week Aberdeen & Grampians Chamber of Commerce warned that North Sea oil and gas operators expect to lay off 17 per cent or one-in-six UK-based workers this year. According to recent estimates, 65,000 jobs have already been lost in the North Sea since the sector was hit by falling oil and gas prices. The latest survey, conducted in partnership with the Fraser of Allander Institute, found that three-quarters of North Sea oil and gas contractors were less confident about their prospects than they were a year ago.

However, confidence levels were marginally higher than their record low in November, and the Chamber’s latest survey shows signs that the sector may be “near the bottom of the curve”.

Let’s hope that’s the case – and that “helping hands” policy action elsewhere is not long delayed.