Post Brexit shock was sharp but short

The latest results indicate that Scottish businesses are now finding that the post Brexit slump has not been as severe as expected, after confidence fell to a three-year low last month.

Business optimism, which predicts growth six months ahead, is up to 98.7 from 97.9, well above the 95.0 level which would indicate the start of recessionary conditions although still substantially below the 101.9 figure in August 2015.

However, business output – which reflects companies’ current experience of orders – has fallen again to 97.4 from 98.2 and is substantially lower than the 104.5 recorded in the equivalent period last year. Jobs continue to be created and BDO’s Employment Index – which indicates firms’ intentions to hire – remains at 100.9 (the same as July 2016) although again substantially lower than the 107.9 recorded in August last year.

So while it is positive that there has been an improvement in optimism this should be qualified with the lower output and static employment numbers. Following the fall in the value of sterling, the Inflation Index has now rallied and sits at 101.4 following a prolonged period of flatness, suggesting that businesses expect inflation to rise from its current lows over the coming months.

Martin Gill, head of BDO LLP in Scotland, said: “After the immediate Brexit scare, businesses appear to be gaining confidence in Scotland and have found that, for most of us, it’s back to business as usual. The Brexit decision was always going to produce winners and losers and it is clear that for some businesses it has been a boon - exporters for example - but for others there remains considerable uncertainty.

“However, it is clear that there remain issues with the Scottish economy which predate the Brexit vote and there are concerns that long term uncertainty over the Scotland’s and the UK’s role in Europe is likely to dent business confidence further in the future.

“Scotland has wider economic issues over the continuing financial difficulties in the North Sea and its impact on the economy of the North East and further afield. This bounce in confidence is welcome and indicates that Brexit can offer opportunity for many businesses. However, I do believe that uncertainty means that the respective governments at Holyrood and Westminster must prioritise taking advantage of cheap borrowing costs to invest in infrastructure and protect the growth of our economy as we move closer to exit negotiations.”