IT was interesting to hear a warning this week that, in a hard Brexit scenario, barriers to immigration could cause an even greater “headache” for the Scottish economy than the hit to trade.
Some might raise an eyebrow, or two, at this declaration from Dougie Adams, economic adviser to the influential EY Scottish ITEM Club think-tank.
The threat to trade is obviously major. European Union markets, such as the Netherlands, France, Germany and many others, are absolutely crucial to Scottish exporters. And the Brexit camp’s tub-thumping following the vote last June to leave the EU - about how the UK had somehow been freed up to do all these wonderful trade deals with countries further afield - has predictably translated into nothing of consequence.
So, at first hearing, the statement from Mr Adams about the economic damage from immigration barriers being greater than that from the obstacles to free trade might well surprise some people. However, without wishing in any way to understate what is likely to be a huge impact on trade if we are dragged down the hard Brexit route, the declaration from Mr Adams should not really come as a surprise.
Senior business figures in Scotland from a very wide range of sectors have spent the months since the Brexit vote highlighting the dire consequences of reduced immigration for growth. So have economists, who have flagged Scotland’s even greater need for immigration given population trends.
And experts’ warnings about myriad other impacts of Brexit continue to come thick and fast.
Mark Whitehead, who runs the £215 million Securities Trust of Scotland, this week flagged a belief that companies had withheld investment materially in the UK as a result of the Brexit vote.
He said: “We suspect that this is the case and the UK economy will experience some future weakness. We are therefore inherently more cautious currently on those sectors that have greater economic sensitivity.”
Future weakness is very much the tone of the EY Scottish ITEM Club’s projections for the economy north of the Border in coming years. The EY ITEM Club is also forecasting significantly below-trend growth for the UK as a whole all the way out to 2020.
The woes of the UK economy were underlined again this week by a survey from the Chartered Institute of Procurement & Supply showing growth of the key services sector weakened significantly in May. It was not exactly growing at impressive rates before.
Official figures last month showed the UK economy performed even more poorly than thought in the first quarter. Its 0.2 per cent growth in the opening three months of this year marked a sharp slowdown from 0.7 per cent expansion in the final quarter of 2016.
The growth figures also underlined intense financial pressure on households, which are now being squeezed by a nasty combination of surging inflation and paltry pay rises after years of economic misery. The surge in inflation, of course, has arisen because of the pound’s slide since the Brexit vote, a movement that reflects the UK’s diminished economic prospects.
Mr Adams noted signs in Scotland that consumers had “exhausted themselves in terms of taking on debt and running down savings”.
A sharp deceleration in consumer spending growth UK-wide, to 0.3 per cent in the first quarter from 0.7 per cent in the preceding three months, signals such challenges for household finances are not confined to Scotland.
For anyone who needs the context for the ITEM Club’s predictions of weak expansion underlined further, Mr Adams declared Brexit was “definitely a knock to growth” in Scotland and the UK as a whole. And he noted current and projected expansion was “well below the type of growth that prevailed before” the Brexit vote.
The EY Scottish ITEM Club predicts growth of 0.9 per cent north of the Border this year. This is half of the 1.8 per cent expansion forecast by the ITEM Club for the UK as a whole.
However, it is worth noting that 1.8 per cent growth is way below the UK’s long-term average expansion rate of 2.75 per cent. It is also as good as EY expects it to get for UK economic expansion all the way out to 2020.
The weakness of the growth forecasts following the Brexit vote, for Scotland and the UK as a whole, is no surprise.
Exporters remain entirely unclear, understandably given the political shambles that has ensued following last June’s vote, what their future terms of trade will be with EU member states and other countries around the world with which they have fully-functioning trade deals through the bloc.
Companies in Scotland, and elsewhere in the UK, meanwhile face major worries in terms of staffing in a post-Brexit environment. Grave concerns have been expressed by senior figures in sectors including engineering, information technology, hospitality, academia and food manufacturing, to name but a handful. Even before Brexit, people from other EU member states are leaving the UK.
Scottish Chambers of Commerce has highlighted anecdotal evidence of departures, and significant numbers of staff from other EU member states have been leaving universities here. Why would people with options hang around waiting to see what will happen?
The EY Scottish ITEM Club, rightly, flagged the pressing need to boost business investment north of the Border. Business investment in the UK as a whole has disappointed consistently since the Conservatives came to power in 2010, with their much-vaunted corporation tax cuts having failed for years to prompt companies to divert the money they are saving into capital expenditure that might boost growth or productivity.
Mr Adams highlighted the importance of confidence in the context of business investment. And he is right.
The problem is that, with Brexit staring us in the face, businesses could be excused for not feeling at all confident. They have displayed plenty of resilience since last June’s vote but that is not the same as confidence, and does not tend to lead to investment.
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