Immediate decline in business confidence after Brexit vote
Business confidence fell following the UK’s vote for Brexit, and is now at its lowest in over three years, according to the latest Business Trends Report by accountants and business advisers BDO LLP.
Scottish business output, reflecting companies’ experience of orders for the three months ahead is now down 0.8 on the previous month at 98.2, down from 99.0 and considerably lower than the July 2015 figure of 104.4. At the same time business optimism in Scotland, which predicts growth six months ahead, has fallen from 98.9 to 97.9 and is down from 103.3 for the same time last year. These lie approximately mid-way between the 95.0 mark on the indices – below which lies possible recessionary conditions - and 100.0 – which correlates to the UK’s trend growth rate of just over 2 per cent. This would indicate that the economy is poised between a potential recession and recovery. This would suggests that the initial impact of the Brexit vote has been less severe than many anticipated.
However, the picture is much gloomier for manufacturing as the sector’s optimism sub-index dropped to a four-year low, down to 81.0 – well below the 95 mark which indicates contraction. The manufacturing sector in Scotland has been in decline for some time as the recent Scottish government figures highlighted showing manufacturing exports down 0.5 per cent in the first quarter of this year.
But the falling value of sterling could signal better exporting conditions and offers some hope for Scotland’s manufacture ring sector, although rising inflation will also have an impact by pushing up costs. BDO’s inflation index rose from 97.9 to 99.9 this month and this is set to rise further in the coming months following the drop in interest rates.
Martin Gill, Scottish head of BDO LLP, said: “The Scottish government figures this week highlighted a slowdown in manufacturing as well as a drop in both the engineering and food sectors. It is clear, therefore, that there were issues with some sectors before the EU referendum.“
“However, for some businesses there may be some optimistic to be had from recent developments. The Bank of England’s decision to lower interest rates is a step in the right direction. Cheaper borrowing will help many businesses in the short term and the fall in the value of the pound will be beneficial to exporting businesses.
“We now need a concerted effort from government to lay the foundations for future growth. That means taking advantage of cheap borrowing costs to invest in Scottish and UK infrastructure, encouraging prosperity across the country and improving productivity.”