JEREMY PEAT
Another month has flashed by and still we seem no nearer to any degree of clarity as to how, when and in what form we are heading for Brexit. The latest Parliamentary votes appear to have increased rather than reduced the prospect of a ‘no deal’ Brexit – with no white knight appearing over the horizon ready to save the UK from itself.
Consequently the economy is still beset with uncertainties and businesses are still delaying decisions, working on short term tactics rather than longer term strategy. It is crucial to note, however, that the impact of Brexit will be long term, given effects on investment in particular, rather than just short term as businesses, consumers and Government adjust.
This focus on the short term is no way to run any economy, especially as we have never fully recovered from the shock of the 2008 financial and economic collapse. Continuing global uncertainties add significantly to the risks. It can be no surprise that consumer and business confidence are in decline and equity markets and sterling falling from already low bases.
The recent evidence from the motor sector shows the state we are in. Car production in the UK in 2018 fell to a 5 year low, with a dramatic decline at year end. However, the data on investment in the sector are even more revealing. Investment is down by 80% - yes EIGHTY PER CENT – over the past 5 years. This highlights the real concern. Business investment and businesses per se are heading elsewhere at a rate of knots because of the uncertainty; and because of concern that access to the key EU markets, and indeed markets elsewhere, will be adversely affected by the fact and form of our departure from the European Union.
The strong statement of concern from top management at Airbus further underscores this investment concern. The ardent Brexiteers tell us to worry not as the UK is critical to Airbus production. That may be the case now and for the near future, thanks to so much past investment having taken place in the UK. That investment came in large part because we have the key skills required. The same applies to the motor sector.
But even if we can retain such skills it is increasingly likely that key future developments will take place elsewhere. Future investments by Airbus and major motor manufacturers will move elsewhere in Europe, or further afield, despite our skill sets and other sources of comparative advantage.
Similar thinking is taking place in the financial sector. Barclays are moving funds abroad on a major scale with RBS set to follow. Unfettered market access does matter and cannot be guaranteed in the present or prospective environment. In manufacturing and services we are losing the key high skilled and increasingly productive elements of business. An IoD survey suggests that this leakage of activity applies to small companies as well as the giants.
We are sometimes told that all is well because employment is at an all-time high and unemployment at a record low. This is obviously welcome, but closer examination of the figures shows real cause for concern. At a UK level the number of employees actually fell in December while the numbers of self-employed shot up. This has been a trend for a decade now, with the number of self-employed up by 1 million since 2008.
That would still be good news if this reflected burgeoning entrepreneurs developing high productivity, high skill-based activities. Sadly most of these new self-employment jobs are low paying, low skilled and insecure. Average (median) earnings of employees are in the order of double those of the self-employed. It would appear that the move into self-employment is often driven by the lack of employment opportunities elsewhere rather than any drive to set up some new business. Also many in self-employment will be undertaking functions that a year or three back were undertaken within companies, but have since been contracted out by businesses preferring flexibility at a time when Brexit uncertainties mount.
Consumer confidence is also suffering, with households’ view of the general economic situation at its lowest for over seven years; nearly back to the gloom of the recession period of 2008/09. This low level of confidence will worsen if uncertainties continue up to 29 March or beyond; distinctly so in the shameful event of a ‘no deal’ Brexit.
This all points to continuing economic weakness over 2019; followed by poor prospects into the 2020s, as investment continues to be weak, productivity growth non-existent, exports in decline and consumer confidence heads for the floor. An approach to the key negotiations with the EU focused on the UK economic interest is the only (slender) hope for tempering the decline. At the very least the ‘no deal’ option should be ruled out.
If you are seeking for light in this economic darkness then this may perhaps be found beyond our shores. The US Federal Reserve has determined to be ‘patient’ on interest rates, which now look set to be on hold for a large part of this year. That will boost the US domestic economy and steady equity markets. If coupled with signs of China and the US working to reduce trade war tensions, the Fed’s approach should enhance stability in the global economy. What the UK needs is the benefit of such stability while working through our own, internally-imposed, economic trauma.
Jeremy Peat is visiting professor at the University of Strathclyde.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here