Comment: Fast-forward to slow-motion future

FROM the prospects for our whisky and oil sectors to the fate of the UK economy as a whole, Scotland on Sunday’s writers read the runes for their 2015 business forecast.

Whisky is at the mercy of Indian tariffs. Picture: Getty
Whisky is at the mercy of Indian tariffs. Picture: Getty
Whisky is at the mercy of Indian tariffs. Picture: Getty


In 2014, the Scotch whisky industry saw the first fall in the value of exports – down to £1.77bn at the halfway stage from £2bn – since 2009, largely due to economic headwinds in emerging markets.

It is entirely possible whisky exports won’t stage a dramatic recovery in 2015 as those emerging markets, from Latin America to Asia, still have their problems.

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The Scotch Whisky Association is likely to get little change out of India from the glacial European Union-India Free Trade Agreement talks, where the industry hopes to get a cut in that country’s punitive 150 per cent import tariffs.

Elsewhere, it is possible that Chancellor George Osborne will dismiss the SWA’s call for a 2 per cent reduction in duty in his Budget next spring, believing that he has already played Father Christmas by abolishing the automatic alcohol duty escalator last time round.

Overall, Scotch may face a year of consolidation rather than advance.

Martin Flanagan


The FTSE 100 index has fallen about 2 per cent this year, following a 14 per cent rise in 2013.

Equities are likely to trade within similar narrow margins in 2015, as it did this year. Trading may well be volatile, but the stock market’s driving emotions of greed and fear will largely cancel themselves out over the 12 months.

A positive for equities is that any interest rate rises in the UK and stateside are likely to be gradual and may well not even start until the summer. Inflation is low.

A slumping oil price is bad for big Footsie constituents like BP, Shell etc, but is a fillip for wider industry’s input costs and consumer spending – both good news for equities. UK equity valuations are on the high-ish side, but not toppy.

More negatively, I see no early rebound for emerging markets, deflation will stalk Europe, and there are plenty of geo-political flashpoints from Russia and the Ukraine to the South China Sea.

Footsie end-2015 forecast: 6,800.

Martin Flanagan

Oil and gas

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With no signs of any meaningful recovery in oil prices, 2015 could be a pivotal year for the long-term future of the North Sea.

Efforts to find new oil and gas fields have slumped to the lowest level since exploration started in the 1970s because of reduced investment, and that trend looks set to continue for some time,

“The UK North Sea is definitely at an inflection point that will either send it down or have the potential to make sure it remains as a basin for another 10 to 15 years,” observes Alison Baker, head of PwC’s UK oil and gas practice.

Many commentators believe M&A activity is inevitable as firms look to build scale and create more robust businesses to ride out the slump. As many as 133 companies are now active in the British part of the North Sea. However, a third of those companies are deemed by experts to be too small to finance big ticket projects on their own.

An increasing number of firms looking to enter new fields are also offering “farm-outs”, allowing investors, including rival companies, to take a stake in new projects.

“But not that many are successful, hence the problem that we see in exploration activity,” notes Brian Nottage, general manager at oil and gas advisory Hannon Westwood.

Perry Gourley


The demise of Edinburgh wave power developer Pelamis was a disappointing end to 2014 for Scotland’s renewable industry, but early next year will see the start of work on a major project which will underline the potential that still remains for the marine energy sector.

Construction of the world’s largest tidal energy project, capable of powering nearly 175,000 homes, will start at Ness of Quoys near to the village of Mey. The £51 million first stage of the project will see four 1.5 megawatt turbines installed, but developers MeyGen hope that figure could eventually reach 269 turbines.

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Meanwhile, the nation’s offshore wind industry is also expected to make significant progress next year. Mainstream Renewable Power’s 450 megawatt Neart na Gaoithe offshore wind farm in the Outer Forth Estuary in the North Sea – the first large-scale offshore wind farm constructed and operated in Scottish waters to be directly connected to the Scottish electricity system – is expected to start pre-construction activities during the year. First electricity from the project is planned for 2018.

Perry Gourley


Among the high street chains, the market already expects big ticket and housing related sellers to be the winners and apparel retailers the losers in 2015. And among the big supermarket chains, this Christmas could have marked a turning point for some, amid evidence that their loss in market share is slowing.

Looking further forward, analyst Kate Calvert at Investec says consumers are better placed than they were at the start of 2014, and the improved economic backdrop should be a key driver of consumer spending and confidence.

But with rising interest rates on the horizon, investors will have to pick their stocks carefully. Calvert highlights Card Factory and WH Smith for “defensiveness” and M&S, Home Retail & SuperGroup for their turnaround potential.

Meanwhile, Nicla Di Palma at Brewin Dolphin picks B&Q-owner Kingfisher as her top retail stock for next year as she thinks the UK home buyer will use money saved on stamp duty to fund DIY projects, new kitchens and bathrooms.

However, retail analyst Nick Bubb sounds a gloomy note – he is convinced a further rise in VAT is on the way whichever party wins the general election.

He adds: “The year is likely to end badly for the general retail sector, particularly if an uptrend at last becomes apparent in interest rates. There is a chance of a modest pre-election boomlet, but big ticket retailers should enjoy the good news while it lasts.”

Dominic Jeff


The UK economy surprised by being one of the better performers of 2014 but most economists think it will struggle to maintain its recent rate of expansion for much longer.

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Not only is there sluggish growth in its key European trading partners to contend with, but next year also brings the uncertainties of a general election that may throw EU membership into doubt. For Scotland there is the additional uncertainty of new powers being devolved.

Bank of Scotland chief economist Donald MacRae expects the recovery north of the Border to continue but at a slower pace.

He says Scottish consumers will continue to modestly increase their spending but businesses will rein in a little.

“Business investment is going to slow,” he says. “It would be hard to see it keeping up the incredible rate seen over the past six months.”

The biggest risk to the recovery, MacRae adds, is that the Eurozone fails to find its feet and continues to stagnate. Action from the European Central Bank is widely expected in the form of a bond-buying programme, but there are doubts as to whether it will work.

Guy Foster, head of research at Brewin Dolphin, warns that the global economy also faces a combination of policies which are unhelpful for growth.

“Growth is clearly still very weak in a number of major economies, while some others are seeing their growth faltering. The response still comes only from central banks, not from governments,” he says.

“We see an increasing number of economies lowering interest rates and potentially employing unconventional measures in 2015. In many cases, however, we are concerned that these measures won’t be significant in stimulating borrowing because underlying demand remains tepid. In fact, the aggressive targeting of inflation at all costs risks being a net contractionary force, a form of beggar thy neighbour policy of competitive devaluation.”


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