As Bank of Scotland reports standstill growth...
Report says $50 oil ‘will boost consumer spending and create jobs’
It notes that incomes rise as the oil price falls and that consumer spending rises. Growing economic activity therefore increases government tax receipts which compensates for the loss of North Sea oil and gas revenue.
John Hawksworth, chief economist at PwC, says: “Lower oil prices should therefore have a positive impact for most sectors of the economy, households and the government, but the scale of these benefits remain highly uncertain depending on how oil prices evolve from here. And of course this does pose important challenges for the North Sea oil industry that the Chancellor should bear in mind in making Budget decisions.”
However, analysts disagree over impact of the oil price cut and whether it will boost jobs or cause a net loss.
Kevin Reynard, office senior partner at PwC in Aberdeen, said: “Here in Scotland the forecast for job creation in 2015 could be as much as 9,700 according to the latest Fraser of Allander economic commentary.
“As the economy in Scotland and the UK continues to grow, we’re seeing those sectors that traditionally have high energy costs, such as fishing, food and drink, manufacturing and construction, benefit from low oil costs – and this will continue in the short to medium term.
“Nevertheless, there is still pain to be felt. Our onshore and offshore oil and gas industry is working hard to mitigate the impact of volatile, low oil prices and the potential domino effect from an economic triple whammy; falling revenues, the risk that some investments may soon be deemed uneconomical, diminishing field life and accelerating decommissioning. While the industry has come out fighting from previous low oil price periods, the backdrop this time is different – cost of production is high and it’s a more mature basin.
“That said, we do believe there are still opportunities for the industry amid this adversity. There are a series of levers business leaders can pull, which, as we’ve seen in the past, can lead to long term sustained efficiencies and opportunities for their business and the wider industry. And there is scope for the Chancellor to reform what is currently a highly complex tax regime in the UK Budget on 18 March, prolonging existing production and incentivising future exploration.
“It’s essential the tripartite of industry, HM treasury and the new regulator, OGA, work together to safeguard skills in the North Sea and across the UK supply chain, preventing what could be an irreversible decline in the oil and gas industry and, instead, securing a new dawn for the UKCS.”
The report projects UK GDP growth to average around 2.5% in 2015, supported by recent oil price falls, before easing slightly to 2.3% in 2016.
Latest Bank of Scotland survey
Business activity was little changed during February, having stabilised following January’s weather-induced contraction, according to the latest report from the Bank of Scotland.
However, new business posted a marked fall, reflective of heightened uncertainty and reduced spending emanating from the oil and gas industry.
Despite the decline in new work and broad stagnation of output, employment rose modestly and this additional capacity enabled companies to clear backlogs of outstanding work to the greatest degree since October 2011.
Donald MacRae, chief economist at Bank of Scotland, said: “Marginal growth returned to the private sector of the Scottish economy in February after a weather-induced contraction in January.
“New business recorded a fall in both the manufacturing and services sectors but employment continued to rise overall. This month’s PMI suggests the Scottish economy has regained some but not all of the growth momentum lost at the beginning of the year.”