JUXTAPOSITION can sometimes highlight some simple truths.
And so it was on Tuesday. While reading on screen the Federation of Small Businesses’ latest quarterly survey, revealing a plunge in confidence among the vital minnows of the corporate world, the eye was diverted to The Herald’s front page, which featured a picture of Foreign Secretary Boris Johnson meeting US President Donald Trump. Mr Johnson was looking rather cheerful.
It sometimes seems almost as if Mr Johnson has been grinning ever since the Brexit vote, apart from perhaps in the immediate aftermath when a few of the Conservatives looked like they had been caught out after some public school “wheeze” had gone too far. Even the derailment of his leadership bid in summer last year seemed not to dampen his ardour for the Brexit project too much.
Read more: Small businesses hit by plunging confidence
Anyway, he certainly appeared to be smiling this week. And small businesses are certainly suffering from the Brexit vote. Sterling’s plunge has pushed up their costs by making their imports more expensive. As if that were not bad enough, they also face huge uncertainty over future access to the workers from other European Union countries who are so vital to the small business sector. And, lamentably, it remains far from clear for small firms, and all exporters, what will happen to trading arrangements with their key EU export markets.
The Brexiters in the Conservative Party, determined to have a “hard” rather than “soft” exit seemingly regardless of the economic cost, continue to generally grin their way through the crisis they have created.
Meanwhile, ordinary people and businesses of all sizes try to deal in a practical manner with the shambles visited upon them by politicians who often seem to have too little regard for, or awareness of, the real economic consequences of their actions. People could be forgiven for thinking some of these politicians are far too focused on furthering their own ambitions, as everyone pays the price for the Brexit vote foolishness.
Read More: Ian McConnell: Tories build high fences in Great British economic steeplechase
There has, of course, been much speculation this week about what some of those ambitions might be. Whatever they are, though, they will be of no help to households and businesses in Scotland and throughout the UK, amid the huge increase in economic misery created by the Brexit vote.
Things were miserable enough before, given we have suffered years of a Conservative austerity programme involving savage welfare cuts and detrimental public sector pay caps. The cumulative impact of these pay caps, for workers who were absolutely blameless regarding the global financial crisis, is certainly coming home to roost now for the Conservatives in terms of exacerbating the weakness of the not-so-great British economy.
The findings of the FSB survey were stark. Confidence among small businesses in Scotland and the UK as a whole tumbled in the latest quarter, as higher inflation and the increasingly apparent domestic economic weakness weighed.
Annual UK consumer prices index inflation had by August surged to 2.9 per cent - from 0.3 per cent in May last year ahead of the referendum on EU membership. This inflation surge has been fuelled by sterling’s post-Brexit vote woes. The pound’s weakness reflects the UK’s much-diminished economic prospects.
High inflation and a renewed fall in wages in real terms, amid weak nominal pay rises, have dampened consumer spending growth and weighed heavily on UK economic expansion. Consumer-facing businesses find themselves in a difficult position. After all, it is a very tough time for them to pass on their increased costs in the form of higher prices, given the huge pressure on household finances. Also on the horns of a dilemma is the Bank of England. Most economists now believe the Bank’s Monetary Policy Committee will raise UK interest rates for the first time in more than a decade at its next meeting on November 2. However, the majority of economists also believe such a move would be a mistake, a state of affairs that sums up the difficult decision for the Bank as it tries to work out how to handle a most unsavoury combination of above-target inflation and well-below-trend economic growth. Such a combination always looked like an inevitable result of the Brexit vote.
The FSB’s Scottish small business index, which measures confidence in terms of member firms’ views of prospects for the coming three months, dropped from -3.8 points to -15.2 points. Meanwhile, the FSB’s UK small business index dropped from +15 points to +1.1 points.
It was inevitable a Brexit vote would damage business confidence and investment, and this effect is being exacerbated by the Conservatives’ seeming continuing lack of any kind of coherent plan.
Strathclyde University’s Fraser of Allander Institute, in its latest commentary this week, declared: “In looking forward, the greatest cloud on the immediate horizon remains the Brexit negotiations. As we have argued on a number of occasions, we believe that the decision to leave the EU will act as a long-term brake on Scotland’s, and [the] UK’s, growth potential.”
It also noted the immediate concern facing many businesses was “the potential for the exit process itself to go awry”. And Fraser of Allander warned the potential risks from a “no deal”, “cliff-edge” scenario, in which Scottish companies found themselves outside the single market and customs union, would be “severe indeed”.
Only London, on about -16 points, had a weaker small business confidence reading than Scotland in the FSB survey. This is an interesting finding, and perhaps signals a more realistic dismay in those parts of the country that had a greater grasp of the negative effects of Brexit and thus voted to remain in the EU.
An awareness of the problems is a crucial first step in trying to mitigate the inevitable damage.
Such awareness of the economic reality appears to be lacking when it comes to those in the UK Government driving us so enthusiastically, and headlong, towards Brexit. This seeming blissful ignorance has persisted since the Brexit vote, which was nearly 15 months ago. And a lack of meaningful progress was highlighted by Fraser of Allander this week.
It said: “We are now 15 months on...with a deal likely to be needed in just over a year’s time. But very little progress – if any – seems to have been made on the key elements of the UK’s terms of exit.”
It appears the Brexiters in the UK Government remain very happy indeed with a course that seems to hark back to the days of a British Empire that is long gone, in a world that has moved on. Not grinning though are the millions of households and businesses struggling to make ends meet amid an economic reality that has taken a lurch for the worse.
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