AS I SEE IT: TERRY MURDEN says many businesses are defying the downturn
With so much good news beginning to challenge the generally assumed theory that we’re all heading to hell in a handcart it’s difficult not to feel some sympathy for policy makers trying to make some sense of the economy. Yes, cost pressures are a big worry, but from retailers to fish exporters businesses out there are proving that they will be damned if the doomsayers are going to prevail.
Just as the last rites are being performed on the high street Marks & Spencer pops up with news that it is opening 20 shops in a £480m commitment to physical stores. Lush has reported its best ever trading and there have been other positive numbers from Tesco to Fatface. New figures show Scotland’s shops enjoyed a “sparkling” festive season.
The good news does not stop at retail. Just before Christmas Scotland’s industrial companies delivered a “surprisingly upbeat picture” with a seventh consecutive quarter of positive order intake and output volume.
Paul Sheerin, chief executive of trade body Scottish Engineering, admitted being “puzzled” by the data as companies grapple with rising costs and supply chain difficulties. He attributed the positivity to Scotland’s broad mix of high value engineering and manufacturing, rising demand within the oil and gas sector, resurgent aerospace and a growing space sector, as well as a strong share of defence projects.
Despite the SNP’s constant moaning about Brexit and the “Tory cost of living crisis”, some sectors are seeing soaring export business. Salmon Scotland said overseas sales in the latter part of 2022 were higher than pre-pandemic levels and demand remains particularly high from France.
The more positive outlook was reinforced by this week’s numbers showing that the economy grew by 0.1% in November against an expected contraction of 0.2%, defying those forecasters who claimed the UK was already in recession.
Michael O’Leary, chief executive of low-cost carrier Ryanair, said he is not seeing any signs of recession and pointed to two weeks of record bookings this January and a recovery in demand from Britain.
Even the hospitality sector is boasting a few successes. Amid the chorus of woes over cost of living and energy pressures there are new figures showing bars and restaurants opening in Glasgow faster than you can shout last orders. One city-based restaurant chain is planning expansion across the UK and overseas.
The housing market may have cooled but mortgages are getting cheaper. Wholesale gas prices have fallen sharply since last year’s peak that triggered widespread forecasts of company closures.
Yet there are grounds for tempering our excitement. Government support with energy bills will reduce sharply in April and taxes will be going up in April, directly for businesses in the form of higher corporation tax.
New figures from KPMG reveal that venture capital investment into UK businesses fell by almost a third (30%) in 2022, as global economic turmoil forced investors to take a more cautious approach.
Even so, it remains well above pre-pandemic levels, and this year KPMG say it is likely that we’re about to enter a period of “new normal” in terms of valuations and M&A. Dry powder is still being deployed — what’s changing is the way it’s being invested. Scottish angel investment syndicate Equity Gap has just announced record figures.
Inflation has fallen in December for the second consecutive month and is now viewed as having peaked, but at 10.5% it remains historically high and the Bank of England and other central banks are expected to continue raising interest rates to get it back to 2%. The question now, though, is whether to do so more gently in order to protect those companies and consumers which are managing to adjust to the higher cost environment.
Expectations of a less aggressive interest rate policy is helping drive stock markets higher, with the FTSE 100 flirting with a new record. Optimists expect it to break through the 8,000 threshold this year and IPO activity could make a broad return in the second half of the year after a period of near inactivity.
Despite the generally more positive anecdotal evidence, surveys continue to paint a gloomy picture and a new Chambers of Commerce survey will report declining confidence, though it was conducted in November and December when alarm over the mini-budget was still impacting sentiment. Crucially, it pre-dates the strong festive trading figures from retailers, the latest fall in inflation and the ONS data on November’s surprise uptick in the economy.
While the labour market figures show the numbers in work at record levels there was a a small rise in unemployment over the latest three months and RBS data this week also pointed to a weakening in private sector activity, suggesting a downturn is inevitable.
The economy still faces some stiff challenges, but businesses that build their defences and plan for growth will be among those that survive and prosper.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business