Brexit fears play a part as Scots economy slides
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.