UK interest-rate-setter Silvana Tenreyro has highlighted the dampening impact of Brexit uncertainty on Scottish businesses’ investment, while flagging strength in the logistics sector arising from stockpiling.
In an interview with The Herald yesterday, Bank of England Monetary Policy Committee member Ms Tenreyro flagged the Brexit hit to investment as a key topic of discussion with businesses during a two-day visit to Scotland, while also noting companies’ concerns over skills shortages. She observed these issues for Scottish companies chimed with the picture in other parts of the UK.
Asked about her impressions of the Scottish economy, Ms Tenreyro replied: “We are here, clearly, to pick up any specifics about Scotland that might be different from the aggregate numbers we see for the whole economy.
“What surprised me is the common denominator for Scotland is the same as the rest of the country. One thing most contacts [mentioned] was Brexit uncertainty and its impact on investment…
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“I have been mostly struck by the similarities. Most contacts mentioned Brexit uncertainty and how it was a reason to postpone or delay investment.”
On the question of whether a reduction in immigration post-Brexit could pose particular challenges for Scotland, in terms of demographic factors, Ms Tenreyro said: “We have been hearing about skills shortages all around the country. It is not specific about Scotland. We have heard that in England and Wales as well, and Northern Ireland. It might be more intense in Scotland but I think it is a common factor.”
Ms Tenreyro, who visited companies in the west coast of Scotland and had a round-table discussion with business people during her visit, flagged the strength of the logistics sector north of the Border,
She said: “Clearly, the logistics sector is doing well. It is related in part to Brexit and many companies needing to stockpile. Logistics companies are very robust.”
In a speech in Glasgow, Ms Tenreyro signalled a cut in UK base rates, currently at 0.75 per cent, was more likely than an increase in the event of a no-deal Brexit.
She said: “In my judgement, a situation where the negative demand effects outweigh those other effects is more likely, which would necessitate a loosening in policy. But it is easy to envisage other plausible scenarios requiring the opposite response.”
Ms Tenreyro, who declined to give a view of the probability of a no-deal Brexit, told The Herald: “If we have a disorderly Brexit, obviously that opens the possibility of a recession. We [the MPC] haven’t made forecasts on that.”
While noting the clearest impact of Brexit uncertainty was on business investment, she cited signs of an effect on households. She note an impact on demand for “big-ticket items” such as cars.
Ms Tenreyro, citing a fall in consumer confidence, said: “Things like cars and the housing market are weaker [across] the country. The housing market has been particularly weak in London and the south-east. There are signs that weakness is spreading out to other parts of the country.”
Ms Tenreyro signalled she was in no hurry to vote for a rise in base rates.
She said: “We have seen a slight softening in core measures of inflation... There is some amount of spare capacity in the economy. I don’t see any rush to raise rates. In order to move to that, I would need to see some material signs that demand is in danger of exceeding supply.
“We have seen healthy wage growth, which is a positive, but we haven’t seen that rise [go] into prices.”
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