Carney: No end is in sight for North Sea oil gloom
But Bank of England Governor detects ‘some rays of sunlight amid dark clouds’
BANK of England Governor Mark Carney has warned the challenging environment in the North Sea is likely to continue for some time given weak global crude prices, insisting he did not want to underplay the difficulties.
Mr Carney, visiting Scotland for the first time since just before the independence referendum in September 2014, also highlighted the impact of North Sea weakness on the broader Scottish economy.
He said: “It impact.”
Mr Carney praised the North Sea industry for an “impressive” reaction in terms of cutting costs.
He declared this put the industry in a “position to move forward, albeit from a low base”.
Mr Carney said: “I would say the reaction of the North Sea oil and gas sector has been impressive. It has been impressive in terms of reductions in costs … Amid dark clouds, there have been some rays of sunlight.”
However, he said of the oil and gas downturn: “It is difficult. I don’t want to underplay it.”
Summing up his view of what the future might hold for the North Sea, Mr Carney added: “It is a challenging environment and, given global prices, that may persist for some time.”
Brent crude was last night trading below $46 a barrel, having fallen during the session.
Mr Carney’s comments come hard on the heels of a report this week from industry body Oil & Gas UK, which forecast the UK North Sea industry would incur a cash deficit of £2.7 billion this year, albeit down from £4.2bn in 2015.
The report also highlighted a Treasury forecast the oil and gas sector downturn would cost the taxpayer £1bn in the 2016/17 fiscal year, with the value of tax breaks and other incentives exceeding dwindling receipts.
Thousands of jobs have been cut in the North Sea amid the downturn.
Mr Carney, who found himself at the centre of the Scottish independence debate ahead of the September 2014 referendum with forthright views on the is having a multiplier key currency issue, seemed keen to avoid becoming embroiled in the heightened constitutional debate north of the Border following June’s Brexit vote.
Asked for an opinion on what bearing recent Scottish growth and fiscal figures had on the constitutional debate, Mr Carney replied firmly: “I don’t have a view in terms of bearing on the constitutional debate.”
Mr Carney meanwhile flagged a slowing of the economy in Scotland as businesses assessed what the Brexit vote meant for their investments, declaring this was common across the UK.
However, he said the Scottish economy had “built strength” in the two years since his last visit.
Commenting on the performance of the UK economy in the wake of the Brexit vote, Mr Carney said: “We expected a material slowing in the economy as a consequence of the decision to Leave … That is not a comment on the long-term prospects for the UK economy. There are positive long-term prospects for the UK economy. It is a product of a period of uncertainty and adjustment that naturally is under way. It is a slowing from strong growth to something less than that.”
Mr Carney highlighted as key issues the nature of the UK’s new relationship with Europe and the opportunities with other countries.
He added: “It is not going to surprise you that the answers to those questions are of tremendous interest to Scottish businesses. There are a series of decisions … that are dependent on how those relationships evolve and over what timeframe those evolve.”
He was at pains to draw a distinction between the present UK economic situation and the one in 2008/09, when a worsening of the global financial crisis brought on deep recession.
He declared the financial sector was “strong”, with banks able to lend to people who “qualify for mortgages” and to support viable business ideas. Mr Carney added: “It also makes a difference that people have worked hard and made progress in reducing their debts.”