Relief but no celebrations yet
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