BIL JAMIESON NOVEMBER 1 2016
Trials and tribulations lie ahead. The forecasts are awful. We’re going down. And Brexit’s to blame.
Economic forecasts continue to warn of doom and gloom – and the blame is heaped on Brexit – specifically the lack of clarity on the government’s plans as we wait (and wait) for Article 50 to be invoked.
Yet through the clouds, glimpses of evidence contrary to the anti-Brexit forecasters can be seen. A business survey this week finds Scotland’s businesses remain optimistic about future growth despite the doom and gloom.
The survey, by business advisors Grant Thornton, finds more than half of business leaders questioned are confident about the country’s economy over the next year.
It also found confidence was among the highest in Europe and the G7.
Debbie Mayor, from Grant Thornton in Scotland, says the latest set of data provided some reassurance during a time of great uncertainty.
She said: “Businesses in Scotland remain resilient and focused on driving forward their growth ambitions.”
Now let’s not doubt that a fog of uncertainty has rolled in. Investment and expansion plans have been hit. And lack of clarity from the government over its Brexit plans is deeply frustrating. Next year will not be smooth.
And the Grant Thornton survey is not without its qualifications. Only 34 per cent of Scottish companies planned to increase their number of employees in the coming year – down on 2015.
But it’s all too easy to dismiss it as an unrepresentative flash in the pan. A rogue questionnaire. Nothing to see here.
Except it follows similar findings from the Scottish Chambers of Commerce Quarterly Business survey last month. It covered almost 400 firms and was carried out between 22 August and 12 September.
This found that the Scottish economy has not slid towards recession as some including the Fraser of Allander Institute have suggested. Scotland’s economy has been growing since the Brexit vote – albeit at a slow pace.
The SCC survey found a pick-up in construction activity in the third quarter. Both housebuilding and public sector contracts returned to growth, with almost 45 per cent of all businesses in the sector stating that total sales had increased.
Optimism in financial and business services also “returned to positivity” for the first time in more than a year. Manufacturers reported a higher trend in export growth than in the previous quarter.
Tourism businesses also reported positive growth over the summer period, but at a lower rate than they enjoyed the previous year.
It’s hard not to conclude that the gloomier official forecasts reflect the predilections of the authors – the anti-Brexit tone of much of the Treasury’s briefings being a striking example.
The dire warnings of some of the most widely quoted forecasters have proved utterly misleading. From former chancellor George Osborne, remember, came the prediction of “an immediate and profound shock” if we voted to leave the EU.
The World Bank, the OECD and the IMF (remember Christine Lagarde’s “very, very bad” prediction) all joined in the biggest Project Fear since, well Project Fear.
Here in Scotland the much-quoted Fraser of Allander has kept up a constant wail of foreboding and hand wringing over Brexit.
In a report this autumn read thus: “Our conclusion is that under all modelled scenarios, Brexit is predicted to have a negative impact on Scotland’s economy. … Over the long-term a reduced level of trade is expected to result in Scottish GDP being between two per cent and five per cent lower than would otherwise be the case.”
This assessment is itself qualified by this breath-taking piece of gobbledygook: “the range of impacts is driven by the nature of any post-Brexit relationship between the UK and the EU … Our modelling suggests that ultimately, the size of the relative impact by sector depends on a complex interplay between the EU-export intensity of sectoral sales and how responsive particular sectors are to changes in competitiveness.”
Brilliant. Make of that what you will.
As for the immediate impact, FoA is forecasting that growth in Scotland will slow to 0.9 per cent this year, to 0.5 per cent next and to 0.7 per cent in 2018 – notably lower than rival forecasts from E&Y and Inverness-based Mackay Consultants.
And what has been the outcome to date? Official estimates put third quarter growth across the UK at 0.5 per cent quarter-on-quarter – giving a resilient 2.3 per cent annual growth rate. That’s way above Treasury forecasts, and also those from the Bank of England which forecast in August that growth for the third quarter would relapse to just 0.1 per cent and sink to zero in the final three months of the year.
It seems as if the real damage Brexit has inflicted to date has been on economists rather than the economy.
The hard fact is that we have been very poorly served by forecasting institutions – particularly UK-wide which were constantly cited by government spokespeople and which we were continually implored to trust.
They are then regurgitated by Brexit opponents who have lost no opportunity to cast doubt on our economic prospects. And the problem with this, of course, is that the more you batter business and the public with negative stories about our dismal economic fate, the more likely it is that confidence will weaken and investment plans will be put on ice.
The attitude of the state broadcaster in particular is akin to that of the masters of the Victorian work house: “The floggings will continue until morale improves!”
Moral? So far the economy – both in Scotland and across the UK – has proved more resilient than we were led to believe. That doesn’t mean we don’t have big domestic problems to address.
But arguably the biggest problem is the vacuum created by the delay in invoking Article 50. Every endeavour needs a deadline. Without one, delay sets in and confusion reigns. So it is proving. We need to get on with it.