Re­lief but no celebrations yet

The Herald Business - - Straight Talking - IAN MCCON­NELL

AS an­other year draws to a close, eco­nomic out­put in Scot­land and the UK as a whole re­mains sig­nif­i­cantly adrift of its level ahead of the on­set of the Great Re­ces­sion of 2008/09. How­ever, many peo­ple in the busi­ness com­mu­nity have been mak­ing more pos­i­tive noises in re­cent months about the back­drop against which they are op­er­at­ing.

Given Bank of Eng­land Gov­er­nor Mark Car­ney’s ob­ser­va­tion that this UK eco­nomic re­cov­ery has been the slow­est on record, this is prob­a­bly more of a re­lief than a cause for cel­e­bra­tion. And, while UK growth has been stronger in the se­cond and third quar­ters, its com­po­si­tion looks po­ten­tially trou­ble­some. We should not un­der-es­ti­mate the chal­lenges ahead.

In this month’s Busi­ness Herald, our writ­ers re­flect on how var­i­ous sec­tors of the Scot­tish econ­omy, in­clud­ing fi­nan­cial ser­vices, prop­erty, re­tail, and tourism, have fared dur­ing 2013.

This year has seen a sig­nif­i­cant im­prove­ment in the for­tunes of Bank of Scot­land owner Lloyds Bank­ing Group, which en­abled the start of the sell-off of the UK tax­payer’s stake in the bank.

How­ever, Royal Bank of Scot­land has not had its trou­bles to seek, and there is no im­me­di­ate prospect of a sell-off of the tax­payer stake in this in­sti­tu­tion. New chief ex­ec­u­tive Ross McEwan will be well aware of the chal­lenges ahead, and there would ap­pear to be a dan­ger of fur­ther sig­nif­i­cant job losses at RBS.

Ron Clark, in this month’s Busi­ness Herald, hails 2013 as the year the prop­erty mar­ket came back to life. He cites a raft of more pos­i­tive fig­ures for both the res­i­den­tial and com­mer­cial prop­erty mar­kets. And, separately, he notes the solid state of the Scot­tish tourism sec­tor, ahead of the Com­mon­wealth Games and Ryder Cup next year.

How­ever, even though re­cent UK growth has been fu­elled to a wor­ri­some ex­tent by con­sumer spend­ing, life has re­mained tough for the re­tail sec­tor. As Si­mon Bain ob­serves, big-name chains have con­tin­ued to dis­ap­pear. And the va­cant re­tail space is ev­i­dent from a walk along most high streets.

It is hardly sur­pris­ing, given the Coali­tion Govern­ment’s con­tin­u­ing aus­ter­ity pro­gramme, that big re­tail names con­tinue to dis­ap­pear and that so many premises are va­cant. This icy grip of aus­ter­ity co­in­cides with a con­tin­u­ing shift from high street to on­line shop­ping.

How­ever, there are still plenty of re­tail suc­cess sto­ries out there. Scot­tish-head­quar­tered re­tailer Schuh is a fine ex­am­ple of what can be achieved by know­ing your mar­ket-place. And re­tailer Next is among the big play­ers which have con­tin­ued to en­joy suc­cess even in these tough times.

How­ever, the hard times which many peo­ple con­tinue to face are writ large in the chang­ing face of the high street, with bar­gain stores and pawn­bro­kers re­plac­ing jew­ellery and cloth­ing stores. And then there is the rise of the pay­day loan com­pa­nies.

We should not un­der-es­ti­mate the con­tin­u­ing im­pact of wel­fare cuts on the broader econ­omy, as well as on house­holds, given that many peo­ple on lower in­comes have to spend all of their money to live. In this con­text, the Coali­tion Govern­ment’s bed­room tax is hit­ting many fam­i­lies very hard.

Over­all, house­hold in­comes con­tinue to fall in real terms, as pay rises lag in­fla­tion. Yet it is con­sumer spend­ing which has fu­elled re­cent growth in the UK. So just how sus­tain­able is this?

Pro­fes­sor Brian Ashcroft, eco­nom­ics ed­i­tor of the highly-re­garded com­men­tary pub­lished by Strath­clyde Univer­sity’s Fraser of Al­lan­der In­sti­tute, has ex­pressed con­cerns about how this con­sumer spend­ing is fi­nanced. He and oth­ers have high­lighted the need for an im­prove­ment in ex­ports and busi­ness in­vest­ment to en­sure a sus­tain­able re­cov­ery.

Fig­ures pub­lished last month by the Of­fice for Na­tional Sta­tis­tics showed a mod­est 1.4% rise in UK busi­ness in­vest­ment in the third quar­ter. How­ever, this was not enough to off­set a drop of 2.7% in the se­cond quar­ter. And the level of busi­ness in­vest­ment in the third quar­ter was 6.3% adrift of that in the same pe­riod of last year.

So, while we might have seen im­proved read­ings on con­fi­dence and hear more pos­i­tive noises, we are still wait­ing to see whether the busi­ness com­mu­nity feels com­fort­able enough in this en­vi­ron­ment to put its hand in its pocket to a suf­fi­cient ex­tent to en­sure its in­vest­ment can take over from spend­ing by hard-pressed con­sumers as a key driver of growth.

Mean­while, for all of Chan­cel­lor Ge­orge Os­borne’s talk of a “Bri­tain car­ried aloft by the march of the mak­ers”, the lat­est UK gross do­mes­tic prod­uct fig­ures from the ONS also show a 2.4% quar­ter-on-quar­ter fall

‘It is en­cour­ag­ing to hear of busi­nesses that are pros­per­ing with bright ideas’

in ex­ports dur­ing the three months to Septem­ber.

So, all in all, it is a bit of a mixed bag as 2013 draws to a close. It is un­doubt­edly a re­lief that things are prob­a­bly not as grim as they were.

And it is also en­cour­ag­ing to con­tinue to hear the sto­ries of the many busi­nesses in Scot­land which are pros­per­ing with their bright ideas in what is un­doubt­edly still a tough eco­nomic en­vi­ron­ment.

These sto­ries are a cause for cel­e­bra­tion. And they pro­vide some hope that re­cov­ery, while it is likely to con­tinue to be slow and painful by his­tor­i­cal stan­dards as the econ­omy is weighed down by on­go­ing aus­ter­ity mea­sures, might keep go­ing in spite of the un­doubted chal­lenges ahead.

The effect of the Coali­tion Govern­ment’s wel­fare cuts should not be un­der-es­ti­mated on the econ­omy as well as house­holds

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.