Chambers questions Bank
Carney’s upbeat comments on economy ‘ill-judged’ says BCC
Mark Carney: Bank’s ‘rhetoric’ has been questioned
Bank of England governor Mark Carney’s upbeat comments on the UK economy have been termed ‘ill-judged’ after evidence emerged of sluggish growth across the country.
The British Chambers of Commerce (BCC) quarterly economic survey paints a subdued picture of tough trading conditions for the dominant service sector and consumer-facing industries, such as hospitality and retail.
Cashflow and investment intentions are “falling significantly” for retailers in particular amid lacklustre consumer spending.
The UK’s largest private-sector business survey is based on the responses of more than 6,000 businesses and is a lead indicator UK GDP growth. Another survey from BDO also points to slower output growth, while a third survey from RBS is more upbeat on the Scottish economy.
The BCC survey’s downbeat mood comes in spite of a modest improvement in activity in the second quarter of 2018 and is published just days after Mr Carney said he was increasingly confident that the British economy’s weak start to the year mostly reflected bad weather and hinted at an August rise in interest rates.
Suren Thiru, head of economics at the BCC, said: “While the modest pick-up in domestic activity points to a slight rebound in growth from a weak first quarter, there remains little evidence in the current data to suggest a sustained upturn in the UK’s economic growth prospects.
“Against this backdrop, the Bank of England’s recent rhetoric around raising interest rates continues to look ill-judged. With the UK economy seemingly stuck on a low growth path and inflation easing, it would be prudent for the MPC to provide greater monetary stability rather than undermining the UK’s growth prospects further.”
The survey says annual economic growth this year is set to be the lowest since the financial crisis n 2008-09 and says much more needs to be done to put the UK economy on a surer footing.
The BCC calls for a push to fix the fundamentals for business – fixing the crisis-hit training system, improving connectivity, delivering infrastructure improvements, and incentivising investment – to create a “Brexit hedge” for the economy.
Adam Marshall: ‘structural issues are also holding companies’ growth back’ (pic: Terry Murden)
Adam Marshall, director general of the BCC, said: “Amid growing international uncertainty, from escalating trade disputes to oil price rises, the UK economy continues to grow at a sluggish rate. Brexit is a key factor – but long-standing structural issues are also holding companies’ growth back.
“The availability of skilled staff remains the biggest issue that firms face. Unless the government gets a handle on the disarray in the training and apprenticeship system and sets out a clear immigration policy that enables firms to cover vacancies, the economic potential of many areas across the UK will continue to be held back.
“Business needs clarity on Brexit, and a strong domestic agenda that creates a ‘Brexit hedge’ as we navigate turbulence over the next few years.
“Big, bold action is needed for the UK to buck the current slow-growth trend – with major new incentives for business investment, confidence-boosting infrastructure projects, and a concerted effort to slash the up-front cost of doing business, which is putting consumer-facing businesses especially under intense pressure.”
BDO reports slower growth
Business output growth is slowing despite record high levels of employment, according to the latest Business Trends Report by accountants and business advisers BDO.
It says business output growth is continuing to slow down, and has reached its lowest reading since December 2012. It is now way below the long-term growth trend.
Despite the stalling output growth, Scottish and UK businesses are more confident about their performance over the next six months.
BDO’s Optimism Index, which shows how firms expect output to develop in the coming six months, marginally increased and remains above the long-term trend.
Considering the increasingly complicating economic environment, both at home and aboard, the findings suggest firms could be more resilient to the unprecedented levels of political and economic uncertainty which are dampening current performance levels.
Martin Gill, lead partner of BDO in Scotland, said: “The record level of employment is a real achievement for the economy during this turbulent period. However, the UK’s perennial productivity problem is hurting firms more than ever as output growth continues to slow.
“The UK government’s concerted effort to raise annual productivity growth to 3% is a step in the right direction but more needs to be done to reach this target. Increasing the annual investment allowance would encourage firms to invest more in infrastructure, technology and training and help solve the UK’s productivity puzzle.”
According to the June Royal Bank of Scotland PMI, Scottish private sector output rose at a strong pace at the end of the second quarter. Inflows of new work increased at the fastest pace in almost four years, prompting firms to expand employment markedly.
Nonetheless, backlogs of work were accumulated for the first time in three-and-a-half years despite the larger headcount across the Scottish private sector. Increased labour costs were reported to have intensified cost pressures. Output prices were raised to a softer degree.
The seasonally adjusted headline Royal Bank of Scotland PMI increased to 54.5 in June, from 53.7 in May, to signal the strongest expansion in Scottish private sector output since August 2014. Furthermore, growth across both the manufacturing and service sectors accelerated.