Gen­tle jog to eco­nomic re­cov­ery

The Herald Business - - Straight Talking -

THIS sum­mer has seen a fairly steady stream of bet­ter news o n t he eco­nomic front for Scot­land, as Glas­gow hosted a hugely suc­cess­ful Com­mon­wealth Games with high­lights in­clud­ing Ja­maican sprint star Usain Bolt danc­ing on the track at Ham­p­den Park to The Pro­claimers’ I’m Gonna Be (500 miles).

On the sub­ject of trav­el­ling sig­nif­i­cant dis­tances, of­fi­cial fig­ures last month showed the Scottish econ­omy had re­gained its pre-2008/09 re­ces­sion peak in out­put in the first quar­ter of this year.

This jour­ney has been any­thing but a sprint. How­ever, Scot­land beat the UK as a whole to the fin­ish line on this one – the UK econ­omy only re­gained its pre-re­ces­sion peak in out­put in the sec­ond quar­ter.

Al­though of­ten over­shad­owed by other do­mes­tic events and in­ter­na­tional con­flict, the con­sti­tu­tional de­bate has al­ways been in the backg round and t he Nor t h Sea has re­mained a key el­e­ment of the backand-forth be­tween the Bet­ter To­gether and Yes Scot­land camps.

The ma­jor in­ter­ven­tions on this front by the big cor­po­rates hap­pened ear­lier in the year, and it has been qui­eter on this front over the sum­mer.

How­ever, it has been en­cour­ag­ing to hear very sig­nif­i­cant com­mit­ments to the North Sea, seem­ingly what­ever the con­sti­tu­tional set-up, from oil gi­ants BP and Royal Dutch Shell in re­cent weeks.

On July 31, Ben van Beur­den, chief ex­ec­u­tive of Royal Dutch Shell, high­lighted the com­pany’s plans to in­vest bil­lions of dol­lars in the North Sea in com­ing years. In par­tic­u­lar, he un­der­lined the oil gi­ant’s en­thu­si­asm for West of Shet­land devel­op­ments.

He sig­nalled that Royal Dutch Shell was not “deeply con­cerned” about the pos­si­bil­ity or con­se­quences

IAN MC­CONNELL

of Scottish in­de­pen­dence, declar­ing the com­pany would deal with it “in the way that we would have to”, if it came to pass. On July 29, a spokesman for BP de­clared: “The North Sea is one of our core ar­eas in which we ex­pect to in­vest over the long term.”

Like Shell, BP is in­vest­ing heav­ily west of Shet­land. Both com­pa­nies are key play­ers in the gi­ant Schiehal­lion and Clair Ridge projects.

Leav­ing the con­sti­tu­tional ques­tion to one side, and the fact UK oil and gas pro­duc­tion has been fall­ing steadily in re­cent years, we should not un­der-es­ti­mate the im­por­tance to the econ­omy of these com­mit­ments to the North Sea by BP and Shell.

The gi­ant North Sea projects on which t hese com­pa­nies have em­barked have been made more at­trac­tive by high oil prices. But these big in­vest­ments also demon­strate the huge ad­vances in tech­nol­ogy over the decades which have made ever more things pos­si­ble when it comes to ex­ploit­ing un­tapped re­serves.

They show that, what­ever the doom­mon­gers say, there is plenty of life left in the North Sea. And we should not for­get what ex­pe­ri­ence of the North Sea has en­abled Sc o t t i s h oi l ser­vices com­pa­nies to achieve. Many of these com­pa­nies have, from their Scottish bases, led the way in bring­ing tech­nol­ogy and tech­niques to oil and gas ter­ri­to­ries around the globe.

Among other bet­ter news on the eco­nomic front this sum­mer has been an ap­par­ent eas­ing, at long last, of credit con­di­tions for small and medium-sized firms.

This im­prove­ment is from a low base, but it nev­er­the­less comes as some­thing of a re­lief at a time when there is a des­per­ate need to see a re­bal­anc­ing of the econ­omy which puts less onus on highly-in­debted con­sumers to drive growth.

Fig­ures pub­lished late last month by the Bank of Eng­land showed a net rise of £235 mil­lion in lend­ing to small and medium-sized en­ter­prises in the UKin June. This was the first such rise since Fe­bru­ary. It was also the big­gest monthly in­crease for a year.

Colin Bor­land, head of ex­ter­nal af­fairs for the Fed­er­a­tion of Small Busi­nesses in Scot­land, high­lighted con­tin­u­ing dif­fi­cul­ties for SMEs re­liant on con­sumer spend­ing, in­clud­ing tourism busi­nesses, in rais­ing fund­ing. But in terms of over­all bank lend­ing to SMEs in Scot­land, he be­lieved things were “go­ing in the right di­rec­tion, al­beit from a low base”.

There are un­doubt­edly still big chal­lenges ahead, and the im­pact of rises in UK base rates, which are prob­a­bly not that far off now, re­mains to be seen. The prospect of higher in­ter­est rates, as well as the Ukraine con­flict, were cited as pos­si­ble fac­tors in an un­ex­pected slow­down in growth of UK man­u­fac­tur­ing ac­tiv­ity in July, re­vealed in a sur­vey pub­lished ear­lier this month by the Char­tered In­sti­tute of Pur­chas­ing and Sup­ply.

How­ever, man­u­fac­tur­ing growth was still solid by his­tor­i­cal stan­dards.

And Andy Hall, head of cor­po­rate bank­ing in Scot­land for Bar­clays, be­lieved that broadly sup­port­ive eco­nomic con­di­tions and a more favourable en­vi­ron­ment for re­search and de­vel­op­ment, helped by a re­cent in­crease in tax cred­its, were en­cour­ag­ing man­u­fac­tur­ers to in­vest more in both new prod­uct de­vel­op­ment and process en­hance­ments.

Busi­ness in­vest­ment has taken a long, long time to show signs of im­prove­ment amid the mis­er­able UK eco­nomic con­di­tions of re­cent years, which were ex­ac­er­bated by the ill­judged scale and mix of the Coali­tion Govern­ment’s aus­ter­ity pro­gramme.

So it is good news in­deed that busi­ness in­vest­ment might at long last be show­ing signs of what will hope­fully turn into a sus­tained im­prove­ment.

The stream of bet­ter eco­nomic news is un­likely to make many of us feel like danc­ing in cel­e­bra­tion at this stage, whether to The Pro­claimers’ I’m Gonna Be (500 Miles) or not, and the econ­omy is cer­tainly not sprint­ing.

How­ever, we should take some com­fort, as we pre­pare for the chal­lenges ahead, from the most re­cent macroe­co­nomic num­bers for Scot­land, the state­ments of in­tent from the oil gi­ants, and signs of im­prove­ment in both the credit cli­mate for SMEs and busi­ness in­vest­ment.

While the econ­omy cer­tainly has not sprinted to re­cov­ery, the Com­mon­wealth Games brought stars such as sprinter Usain Bolt to Glas­gow which boosted spend­ing.

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