Jeremy Peat

It seems that every time I am about to put pen to paper – or rather two fingers to keyboard – some more disappointing economic news emerges. This time around we have just seen distinctly weak data for UK GDP growth in the first quarter of 2016, both weaker than expected and also weaker than for the previous quarter. These are only provisional data, estimated from limited information and as ever subject to revision. Nevertheless they fit in with the general trend of a deceleration in the global and UK economies, with Scotland distinctly underperforming the UK as a whole.

These latest GDP data suggest that the UK economy grew by only 0.4% in Q1, with declines in the productive industries (including specifically manufacturing), construction and agriculture. The service sector accounts for nearly 79% of our economy these days, and at least this sector grew by 0.6%. The contribution of both manufacturing and construction has gone from positive to negative while that from services has declined. Not a happy picture.

The most positive feature of the UK economy in recent years has been the labour market. While productivity has deeply disappointed, employment has grown markedly and unemployment fallen to very welcome low levels. This pattern has turned around in the past year or so in Scotland and now it looks as if the same may apply to the UK as a whole. In the three months to February the numbers unemployed actually increased while the growth in the numbers employed declined to just over 20 thousand - from over a quarter of a million in the previous quarter. Unsurprisingly the growth in UK average earnings remains remarkably subdued, at 1.8% per annum as compared to over 4% pre-recession.

So Scotland’s labour market is less positive than that of the UK as a whole. The same can be said for housing. According to the Royal Institute of Chartered Surveyors UK house prices were a buoyant 7.6% higher in February than a year previously. House prices fell over that period in only one of the UK’s nations and regions. Sadly that was Scotland.

So in Scotland we have slower growth than the UK as a whole; employment growing less slowly and unemployment on a rising rather than falling trend; with house prices declining rather than rising. The forward looking picture is no less discouraging. In the highly regarded monthly Purchasing Managers Index; any number above 50 points to growth continuing. In March the UK PMI stood at 53.6 – low but firmly in positive territory. The highest figure was for Northern Ireland, booming off the back of the Republic’s renewed growth ‘miracle’. The lowest was Scotland at a miserly 48.5, suggesting that we could well see decline in Scottish GDP when our first data emerge for Q1 2016. Recession could be knocking at the door.

Enough of this doom and gloom talk, let’s turn to the EU referendum! Many folk have bemoaned the lack of impartial, objective and informed commentary. Trying to pick the bones out of the outpourings of the pro or anti campaigners is a hopeless task; while the massive HM Treasury document is not the easiest to access let alone assess. Therefore it is time to heap a load of praise on my old friends at the David Hume Institute (where I must admit to having been Director from 2005 to 2014) for their timely production of a fascinating and informative book of essays.

This document – ‘Britain’s Decision – Facts and Impartial Analysis’ - has been produced in conjunction with The Hunter Foundation and the Centre on Constitutional Change and is available free of charge as an E book via the DHI website. It deserves to be very widely read, given how important this decision on June 23rd is going to be to all in the UK, but most especially those in Scotland.

I naturally turned to the chapter by Professor David Bell (where would we be without David?) covering a number of economic issues. On the trade front I was reminded of the extent to which Scottish exports to the rest of the UK outweigh those to the EU and the remainder of the globe. It was also noteworthy to see how our exports to the EU have stagnated in recent years; thanks no doubt to the years of turmoil and uncertainty within the eurozone. Clearly that EU trade relationship still really matters but the USA is a bigger market for Scottish exports outwith the UK than any individual EU member state. Uncertainty about our trade arrangements with both EU and US would be a major cause for concern.

David Bell also helpfully cites estimates (by the Centre for European Reform) of the UK and Scottish contributions to the EU Budget. The annual UK gross payment over the next few years is expected to be around £17 billion. Netting off the rebate (Mrs Thatcher’s continuing gift) and public sector receipts (mainly Common Agricultural Policy but also Structural Funds and scientific research funding) brings the net UK total to just under £8 billion – or £117 per head per year.

Scotland fares better than average on the receipts front. The CER estimates our net contribution at £337 million per year or £64 per head per annum. David Bell helpfully provides useful comparators. Norway contributes more per head than Scotland and Switzerland only slightly less. Both are outside the EU but within a trade zone. The net Scottish contribution to the EU of £337 million per year contrasts with the latest estimate of our fiscal deficit with the rest of the UK at £14.9 billion. Food for thought.

Jeremy Peat is visiting professor at the University of Strathclyde International Public Policy Institute