INVESTMENT by Scottish businesses continues to decline amid Brexit uncertainty, with little sign this situation is about to improve, a survey published today by Royal Bank of Scotland reveals.
However, the survey also signals a pick-up in Scotland’s economic growth
Publishing its quarterly business monitor, in association with Strathclyde University’s Fraser of Allander Institute, Royal Bank flags the survey’s finding that there has been a relentless decline in Scottish business investment over the last 18 months.
Bank of England Governor Mark Carney has been among those to highlight the dampening impact of Brexit uncertainty on business investment throughout the UK.
Subtracting the proportion reporting a rise from that recording a fall, in the survey of more than 400 Scottish companies, a net six per cent revealed a decline in capital expenditure.
Commenting on the Scottish business investment picture in recent years, Royal Bank chief economist Sebastian Burnside said: “We had a real see-saw. Back in 2014/2015, it was fairly flat. Then, around the Brexit referendum [in] 2016, we had this big see-saw where the initial response [of businesses] was really ‘risk-off’ and not wanting to do anything.
“I think, as people appreciated less was going to change immediately than they might necessarily have expected, we had a lot of people being slightly more confident about the outlook. That see-saw has quickly given way to just relatively very negative sentiment about investment.”
And Mr Burnside warned there was little in the way of “glimmers of hope” regarding the outlook for business investment.
He said: “ Businesses are backing up what they are saying on their expectations with their actions. A turnaround does not look as if it is imminent at all. This isn’t some momentary weakness. It has been with us for 18 months solidly now.”
Mr Burnside underlined the impact of Brexit uncertainty on investment, as well as slow growth in Scotland in recent times.
Asked about the impact of Brexit uncertainty, he replied: “It doesn’t look [like] that has helped. There is definitely uncertainty over the trading arrangements we will have. One of the aspects of this which is now very clear is that it is taking a long time to get more clarity over what those arrangements will look like in the future.
“We have got proposals from the UK side. We don’t know for sure what we are looking at in March 2019 – exit, or a transition period for two years where not very much changes.”
Mr Burnside added: “The pace of growth in the Scottish economy as a whole over the last two years – it hasn’t been rapid enough to inspire confidence.”
Citing signals in the latest monitor of an overall acceleration in growth of activity for Scottish companies, he declared: “Hopefully, the sort of numbers we are hearing through this survey will prompt some confidence.”
Subtracting the proportion reporting a fall from that posting a rise, a rounded net 7% of Scottish companies recorded an increase in business volumes in the second quarter. In the first quarter, a net 1% had reported a rise. The transport and communications, manufacturing, and finance and business services sectors were strong, but tourism was weaker. Businesses in the west of Scotland, overall, fared better than those in the east in the second quarter.
Mr Burnside, who flagged the dampening impact of the oil price downturn on the Scottish economy in recent years, observed activity in north-east Scotland was now “basically flat”, noting this situation was a “lot better” than that previously .
Exports helped boost overall growth of Scottish businesses. A balance of 7% of companies reported a rise in export activity in the three months to June, a major improvement on the net 5% posting a fall in the first quarter.
Mr Burnside observed better growth in Scotland was coming through at a time of high cost pressures.
Looking ahead to the Bank of England Monetary Policy Committee’s interest-rate decision this week, he said: “I think it is evidence that adds to the pile that suggests the MPC will put rates up on Thursday in an effort to head off some of those cost pressures down the line.”
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