Calls for Minister for Manufacturing
Gap now growing between Scottish and UK economies
Scottish consumers are also spending less and a shortage of skilled staff is restricting the ability of companies to expand.
The growing gap between Scotland and the wider UK economy is among the key findings in the latest Ernst & Young Scottish Item club report.
It says the Scottish economy matched UK growth in 2014, but this year is expected to undershoot UK growth by about 0.5%.
However, Scotland’s predicted 2.2% growth for 2015 still represents a small half year upgrade to the original forecast of 2% highlighted at the end of 2014.
“We previously predicted that while Scotland’s economy enjoyed its best year since the financial crisis in 2014 with 2.6% growth, the pace of expansion would ease,” says Dougie Adams senior economic adviser to the club.
“The downside of the oil price fall is much more marked for Scotland than for the rest of the UK; the Scottish consumer appears to be pausing for breath; and the high employment rate could point to emerging capacity constraints.
“Against this, improving household finances will buoy the overall growth rate and we believe this soft patch will give way to better growth on the back of the continuing UK recovery.”
Calls for a Minister for Manufacturing
Among a number of other reports out today, the latest Business Trends Report by BDO in Scotland says manufacturers reported the biggest decline in optimism since March 2013.
It says exporters have been particularly hard-hit as the continued slow performance of the Eurozone hits overseas markets and the strong pound makes British goods more expensive. Added to this, low oil and gas prices have curbed investment by the sector and slowed orders for manufacturing firms in the region.
Martin Gill, head of BDO in Scotland, says: “The Government’s plans to rebalance the economy are vital, but it is equally vital that the manufacturing sector reaps the benefits from these plans and receives the help it needs to thrive. In particular, we need to see the regional powerhouse plans translate into real support for the manufacturing sector.
“Additionally, we would like to see a formal target set for manufacturing’s share of GDP, which will provide the foundations for sustainable industry policy. This could be steered by a dedicated manufacturing minister – another option we would like to see considered by the Government.
“Manufacturing is a key sector for economic growth, so specific support could help boost the economy as a whole. A measure such as a reducing National Insurance for manufacturers taking on new employees could create up to 5069 jobs in Scotland, and boost GDP by over £202m each year.”
Private sector activity strengthens
Bank of Scotland also reported a weakening in manufacturing. According to tits purchasing managers’ index, private sector activity in Scotland grew in May for a second month in a row and at the fastest pace since December. Growth was, however, centred on the service sector as operating conditions in manufacturing remained subdued.
Donald MacRae, chief economist at Bank of Scotland (left), says: “May’s PMI at 51.9 was the highest for five months driven by robust growth in service sector activity. Although manufacturing output shrank the rate of decline slowed. Employment and new business increased across all sectors but new export orders for manufactured goods declined but a reduced rate compared to last month. The Scottish economy is regaining some growth momentum lost in January this year.”
CBI downgrades growth target for UK
The British economy is on a firm footing, having grown faster than previously thought in 2014 and with solid, steady and sustainable growth predicted into 2016, according to the CBI’s latest economic forecast.
It is forecasting 2.4% growth for 2015 and 2.5% in 2016. That represents a slight downgrade compared with February’s forecast of 2.7% and 2.6% respectively, largely due to weaker than expected official GDP data for the first quarter of – 015, which the CBI believes is a temporary blip.
Following first quarter growth of 0.3%, the CBI predicts a strong rebound in the coming months with quarter-on-quarter growth of 0.8% in Q2, 0.7% in Q3 and 0.6% in Q4. This also follows the official upgrade of growth in 2014 as a whole to 2.8%, from 2.6%.
Despite growth prospects looking healthy at home, there are headwinds to the recovery, with a still sluggish Eurozone and renewed uncertainty over Greece’s economic future.
John Cridland, CBI director-general, says: “The recovery has built up a good head of steam and we expect to see solid, steady and sustainable growth carrying through into next year.
“Our members are feeling more upbeat than some of the recent official numbers suggest, with our surveys showing that retail and the service sectors in particular are performing strongly.”