Brexit fears play a part as Scots econ­omy slides

The Herald - - FRONT PAGE - IAN MCCON­NELL BUSI­NESS ED­I­TOR Pic­ture: Jamie Simp­son

SCOT­LAND’S pri­vate sec­tor econ­omy was pushed into re­verse in De­cem­ber as Brexit uncer­tainty hit, hav­ing out­per­formed the UK as a whole in four of the five pre­vi­ous months, a sur­vey shows.

Royal Bank of Scot­land’s lat­est PMI (pur­chas­ing man­agers’ in­dex) re­port shows con­trac­tion of both the ser­vices and man­u­fac­tur­ing sec­tors north of the Bor­der last month. The busi­ness ac­tiv­ity in­dex fell from 52.2 in Novem­ber to 49.3 last month on a sea­son­ally ad­justed ba­sis. This is the first read­ing below the 50 no-change mark since Fe­bru­ary.

In the UK as a whole, the pri­vate sec­tor econ­omy achieved mod­est growth in De­cem­ber, the PMI re­port sig­nals. North-east Eng­land was the only other one of the 12 na­tions and re­gions of the UK to ex­pe­ri­ence con­trac­tion of its pri­vate sec­tor econ­omy in De­cem­ber, and its fall in out­put was sharper than that in Scot­land.

Se­bas­tian Burn­side, chief econ­o­mist at Royal Bank, said: “After quite a few months of de­fy­ing grav­ity… un­for­tu­nately Scot­land’s busi­ness sec­tor has caught up with some of the pes­simism that has been stalk­ing the rest of the UK.

“We have our first below-50 score since Fe­bru­ary, so [a] dis­ap­point­ing over­all re­sult, but there is still some rea­son­able com­fort we can take in terms of the level of out­put and ac­tiv­ity firms have been en­gag­ing in. This does feel that that ner­vous­ness around Brexit is start­ing to af­fect peo­ple who are run­ning busi­nesses at the mo­ment.”

Mr Burn­side warned Scot­tish busi­nesses to pre­pare for a fur­ther pro­tracted pe­riod of uncer­tainty, with a high pos­si­bil­ity this would ex­tend be­yond the cur­rent March 29 Brexit date.

He said: “In terms of look­ing for­ward, we would cau­tion busi­nesses that it is very pos­si­ble this pe­riod of high uncer­tainty lasts be­yond March. After the ref­er­en­dum, and over the last cou­ple of years, we have spent a lot of time think­ing about dif­fer­ent sce­nar­ios where some­thing hap­pens on March 29 and ei­ther we are out of the Euro­pean Union into a tran­si­tion deal or we are out of the Euro­pean Union and into a no-deal Brexit world.

“But, in­creas­ingly likely, is be­yond that date we may be in an ex­tended pe­riod where it is not yet clear which di­rec­tion we are tak­ing and it is much more up for de­bate – whether that is be­cause the Gov­ern­ment has gone back to the EU to ne­go­ti­ate or whether it is be­cause we have some other change in West­min­ster pol­i­tics which has pushed us off in an­other di­rec­tion.”

Mr Burn­side added: “I think busi­nesses are go­ing to have to steel them­selves that this uncer­tainty isn’t go­ing to be go­ing away any time soon, un­for­tu­nately.”

In spite of the fall in Scot­tish pri­vate sec­tor out­put last month, Mr Burn­side took heart from the fact busi­nesses were over­all still in­creas­ing em­ploy­ment, al­beit the lat­est rise was mar­ginal. He also noted Scot­tish busi­nesses’ ex­pec­ta­tions of growth over the next 12 months had dipped only marginally last month, and that op­ti­mism about in­creased ac­tiv­ity re­mained greater north of the Bor­der than in the UK as a whole.

Sep­a­rately, a sur­vey pub­lished to­day by the Con­fed­er­a­tion of British In­dus­try and ac­coun­tancy firm Price­wa­ter­house­coop­ers shows to­tal busi­ness vol­umes in the UK fi­nan­cial ser­vices sec­tor fell slightly in the three months to De­cem­ber.

This is the first quar­terly con­trac­tion for more than five years, with macroe­co­nomic and Brexit uncer­tainty and global mar­ket volatil­ity cited by the CBI as fac­tors weigh­ing on the sec­tor.

„ Scot­tish man­u­fac­tur­ing out­put fell in De­cem­ber as Brexit uncer­tainty took its toll.

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