Gentle jog to economic recovery
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
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.