Ian McConnell: Rumpus over Scots growth rate overdone by politicians

People could have been forgiven for thinking, given the intensity of political point-scoring in the wake of publication of the latest Scottish gross domestic product (GDP) figures this week, that the nation had tumbled into recession.

“Pretty pathetic” was the Scottish Liberal Democrats’ view on the figures. Maybe the use of the word “pretty” signalled a bit of caution about being quite so categoric but who knows? Scottish Labour’s economy spokesperson Jackie Baillie declared: “These figures expose how Scotland’s pitiful economic growth under the SNP is low and slow.”

David Mundell declared it was “increasingly concerning that a significant gap persists between Scotland’s economy and the rest of the UK”, although, to be fair to the Scottish Secretary, he did also highlight some positives in terms of fourth-quarter services and production sector growth north of the Border.

Amid the bluster, it is worth standing back for a moment to reflect on the Scottish Government’s GDP figures. These showed the Scottish economy grew by 0.3 per cent quarter-on-quarter in the final three months of last year. This compared with a UK-wide growth rate of 0.4% for the same period, which was confirmed in the latest quarterly accounts published by the Office for National Statistics last week.

Read More: Ian McConnell: Beware politicians bearing upbeat messages as households struggle and Brexit bites

The comparisons over a longer timeframe show Scotland’s economy is further adrift of the UK as a whole. Scotland grew by only 0.8% last year. The UK, which benefits from the economic strength of London and south-east England, last year recorded its weakest growth since 2012, expanding by 1.8%.

But this Scottish underperformance was hardly news. We knew already, from quarterly data, that this was the likely outturn. We should also remember that, as recently as last summer, Conservative politicians were warning the Scottish economy might have fallen back into recession in the opening quarter of 2017. This did not happen.

Scotland’s economy has been hammered in recent years by the global crude price plunge. The North Sea has been laid low, although there are now some signs that things are getting better. The damage was not confined to the North Sea but spilled over to the broader Scottish economy, something that has been underlined by a raft of surveys.

The likes of hospitality and other consumer-facing businesses in north-east Scotland have felt the strain as many thousands of North Sea jobs have been cut. And engineering companies and others throughout Scotland which form a crucial part of the oil and gas supply chain have in recent years had to cope with a downturn in their business from the North Sea.

Scotland’s construction sector has meanwhile suffered in recent times as huge infrastructure projects such as the Queensferry Crossing, which provided such an important boost to the economy in tough times, have come to an end.

Read More: Ian McConnell: Boris might still be grinning but millions of people are mired in misery of paying for Brexit foolishness

Construction sector output north of the Border fell by 2.6% quarter-on-quarter in the final three months of last year.

Separately, the University of Strathclyde’s Fraser of Allander Institute has in recent years been among those highlighting a view that Scotland could be hit disproportionately by huge welfare cuts, implemented relentlessly by the Conservatives since 2010.

John McLaren, honorary professor at the University of Glasgow’s Adam Smith Business School, this week flagged a long period of underperformance by Scotland’s economy and hammered home his view that the reasons require greater study. One economic issue of particular concern to Mr McLaren, who runs the Scottish Trends website, is the degree to which growth of the business services sub-sector north of the Border has trailed that in the UK as a whole.

There has been plenty of anecdotal evidence that Scotland’s professional services sector has been hammered by the loss of work which came previously from Edinburgh-based HBOS and Royal Bank of Scotland.

HBOS found itself on the brink amid the global financial crisis and became part of London-based Lloyds Banking Group, with the enlarged entity receiving a huge UK taxpayer bail-out which has since been repaid. The UK Government still has a majority stake in Royal Bank of Scotland, which had to be bailed out in 2008 after coming close to collapse.

The Scottish professional services sector’s loss of work from big banks as decision-making has shifted to London, and the knock-on effect of this, has not helped the broader economy north of the Border.

Read More: Ian McConnell: So who actually believes departing Cameron rescued UK economy?

While it is right to focus on what can be done to boost the Scottish economy, it is worth keeping in mind that growth in the UK as a whole has in any case been dismal for years now, against a backdrop of austerity. The UK economy’s woes have been exacerbated by Brexit uncertainty and inflation fuelled by sterling’s tumble in the wake of the June 2016 Leave vote.

And we should not lose sight of the positives in the fourth-quarter Scottish GDP data. Scotland’s services sector grew by 0.5% in the final three months of 2017. This was ahead of UK services expansion of 0.4% over the same period.

The Scottish production sector grew by 0.9% in the fourth quarter.

Of course, Scotland, like many other parts of the UK, faces major economic challenges including that of improving productivity. Brexit will continue to be a huge headwind for Scotland and the UK as a whole. The Brexit vote has brought renewed falls in real-terms pay, weighed on consumer confidence and dampened business investment.

Even before actual Brexit, the Leave vote has sent the UK to the bottom of the pile in terms of recent and projected growth among major developed economies.

The Scottish Government should do all it can to maximise growth north of the Border. However, while we can analyse Scotland’s performance, it is absolutely crucial to realise the limitations of Holyrood’s powers, which pale into insignificance relative to the backdrop of UK Government austerity and Brexit.