Farmers are struggling to carry out hay and silage work, with the North-East and the Highlands among the areas worst affected by heavy rainfall. Many farms have seen ground badly damaged by the wet conditions, with NFU Scotland warning that it could take more than a year for some areas to return to normal.
Meanwhile, last week brought news of more oil sector job losses, with oil giant Taqa cutting 100 offshore core crew posts – this on top of 100 job losses the company announced in March – and oil services concern Ace Winches putting 60 positions at risk of redundancy.
Important parts of Scotland’s economy are not having a good year at all. Exporters are battling against a markedly high level of sterling. And for many in the retail and leisure sectors, the persistent miserable weather has made 2015 a wash-out, with customer footfall well down and nurseries and garden centres particularly badly hit.
I thought it only fair to get the bad news in first. However, last week brought encouraging pointers on business activity. And while “Super Thursday” – the nickname given to a bunch of economic numbers released from the Bank of England that day – scarcely lived up to the billing, the headline items will have come as a relief to many.
The Bank’s Monetary Policy Committee voted 8-1 to keep interest rates on hold. While this was the first time for months the decision was not unanimous, the vote to stick with the 0.5 per cent rate for now was larger than many had predicted, with only Ian McCafferty, a former chief economic adviser to the Confederation of British Industry, voting for an increase.
The Bank’s latest Inflation Report said the outlook was “muted”, leading some economists to say a rate rise could now be delayed because of the twin effects of a high sterling exchange rate – up 3.5 per cent since May – and recent further falls in oil prices – with the Brent crude futures price now back down below $50 a barrel. Aberdeen Asset Management chief economist Lucy O’Carroll said that analysts who had forecast a rate rise this year “may be on brink of having to rip up their predictions”.
The Bank sees inflation averaging only 0.3 per cent in the fourth quarter of 2015 and only getting up to around one per cent in the second quarter of next year. But consumer price inflation is still seen getting to its target rate of two per cent in the third quarter of 2017 and flattening out thereafter. Most analysts now believe that the Bank will only edge up rates from 0.5 per cent to 0.75 per cent in the second quarter of 2016 to reach 1.75 per cent by mid-2018 and that the risks of an earlier move have now waned markedly. The increases, when they come, said Governor Mark Carney, would be “gradual” and limited to a level “below past averages”.
Of particular note was that the MPC has become more upbeat on growth prospects, with the forecast for 2015 moving up from 2.5 per cent in May to 2.8 per cent in August. However, while the near-term growth outlook is a little firmer, the MPC has not lowered its view of the degree of slack in the economy. This appears to reflect the fact that it has been pleasantly surprised by the degree to which productivity has recovered over the first half of the year, with total hours worked having been weaker than anticipated.
Here in Scotland our small and medium-sized businesses believe the economy is in better shape today than before the recession, with investment levels growing as a result. Research by Clydesdale Bank released last week showed SMEs intend to invest, on average, seven per cent of their annual turnover back into their business and the UK economy in the next 12 months. This is up from October last year, when the UK average investment figure was six per cent of turnover.
Two fifths (41 per cent) of Scottish SMEs believe the UK economy is in better condition today than it was before the recession in 2008-2009.
Nationally, SMEs intend to invest, on average, nine per cent of their annual turnover, which could drive investment totalling £108 billion in the next 12 months. According to the latest UK government statistics, there are 5.2 million SMEs in the UK with a combined annual turnover of £1.2 trillion.
The leading focus for SMEs is to invest in new equipment, with around a quarter (27 per cent) saying it is the top priority. This is followed by investment in developing products (12 per cent) and training staff (10 per cent).
The main reasons cited by Scottish SMEs for investing are the opportunities created in the domestic marketplace (28 per cent) and the improved economic conditions (22 per cent).
The survey findings are likely to be confirmed with fresh data on Scottish business confidence due out this week. Private sector companies are set to report further growth of output and new orders at the start of the third quarter with activity increasing at the strongest rate in 2015 so far. And a separate report is likely to confirm growth in business activity in Scotland over the summer. Businesses look to have responded positively to the political stability after the general election, with a sense of increased certainty encouraging them to invest and focus on long-term prospects.
However, a notable weak spot is the export-focused manufacturing sector, which is bearing the brunt of the high level of sterling. A slowdown in global growth – as signalled by renewed falls in the commodity and energy sectors – is challenging exporters.
The total trade deficit widened to £1.6 billion in June after narrowing considerably to a 23-month low of £895m in May. However, while total exports of goods and services increased 2.3 per cent quarter-on-quarter in the April-June period, a dip of 0.6 per cent month-on-month in June suggests that the UK is still not finding it easy to build up export momentum. While the Super Thursday picture is reassuring in many areas, it’s not turning out to be a super year for everyone. «