The economy: signs are mounting that we’ve turned a corner

There is growing evidence that the economy has turned a critical corner.

After last week’s figures showing a better than expected third quarter jump of 1 per cent in GDP, come more signs of improvement. In Scotland our business survival rate may at last be on an upward turn.Figures compiled by leading accountants and business advisers PKF from Accountant in Bankruptcy data show that a sharp fall in the number of Scots companies going under.

The fall is from a very high rate sustained over the previous three quarters and the failure rate is still at a very elevated level compared with ‘normal’ periods.

But the latest figures show that 274 Scottish companies went under in the third quarter of the year down 34.8 per cent on the previous three months and 24% lower than the same quarter of 2011.

The figures mark a sharp reduction on two previous quarters which were the highest on record for Scottish corporate failures. And they have been followed by figures in the past two days showing further signs of upturn. New figures from the Bank of England show that lending to individuals picked up in September. The number of mortgages for house purchases rose to 50,024 in September, up from 47,921 in August. The number of approvals for households remortgaging also rose, taking both levels above the monthly average of the previous six months.

Said Mark Harris, chief executive of mortgage broker SPF Private Clients, “ The uptick in lending seen in September is caused by a number of factors: increased loan availability, better rates as a result of the Funding for Lending scheme and increased confidence among buyers. Some more realistic pricing from vendors keen to shift stock that has been hanging around for a while is also helping."

And Bank of England deputy governor Charlie Bean said yesterday that there is "reason for some optimism" for the UK economy. He cautioned against "getting over-excited" after new GDP data showed the recession was over - pointing out the Olympics had given a one-off boost.

But Mr Bean said there were "signs of progress" from the Euro zone and banking crises and inflation should be lower.

Speaking on Sky News, Mr Bean said, "The big picture here is of an economy that has been bumping along the bottom for two years.We do think there is reason for some optimism going forward. Some of the headwinds we have been struggling against in the past couple of years will be abating somewhat.Most particularly, we have seen a big squeeze on households' real spending power... Going forward, that squeeze should not be so intense.”

The fall in Scottish business failures may not seem much to write home about. But business failure rates are what economists call a ‘lag’ indicator. They do not tend to improve until some time after the trough of recession/downturn has been passed.  And this is a  marked reduction that could indicate that while conditions in sectors such as construction and retail remain tough, we may now have passed the worst for the economy overall.

The factors that are making life miserable for retail and construction are less to do with “recession” as such but specific causes such as in retailing a structural shift from high street to online shopping and in construction the consequences of political decisions to stack government spending cuts on capital projects while protecting vote-earning welfare benefits and hand-outs to lobby groups.

If the rate of business failure is indeed now heading down that is very encouraging news – both for entrepreneurs planning to launch a business and banks and business angels with the wherewithal to support them.

Bryan Jackson, Corporate Recovery Partner with PKF is under no illusion that the figures have to fall a long way yet before we can be confident of a recovery. “These figures are welcome but cannot conceal the underlying issues facing the Scottish economy.Some sectors are being hit harder and we have had further evidence of major closures in the High Street, in the hospitality sector and in construction".

After the traumas of the past four years this is going to be a much longer period of convalescence.

But all the more reason to cheer the small signs of recovery when they do come through.