By Jeremy Peat

Uncertainty, with regard to the pandemic, the intertwined UK and Scottish economies and increasingly the global economy, remains all-encompassing. It would be splendid to think that rather than just highlighting and bemoaning these uncertainties, we could now be considering more targeted remedial action (for the really worrying short-term issues) and how to point our economy in recovery towards a more equitable and sustainable future.

In the UK, the medical and economic uncertainties are closely inter-related. The bounce-back in Covid cases, and accompanying expectation of rapid increases in hospitalisation and deaths, calls for renewed lockdown on a partial and/ or national basis. That renewed lockdown must inevitably be associated with lower consumer demand and another cut in business investment; and more business failures. Even with the new measures announced by the Chancellor, unemployment will inevitably rise, and rise sharply, with a major uptick when the furlough scheme comes to an end later this year.

Meanwhile the trend in gross domestic product looks set to move from a brief period of acceleration (the bounce-back over the summer months) to stagnation or further decline. These likely trends apply to Scotland and the UK in equal measure.

Scottish GDP grew by 6.8% in July, but even after this jump Scottish output remained 10.7% below the February pre-Covid peak. There is likely to have been some further growth in August, before the rate of infection rose sharply again and confidence sagged once more, as the expectation of further lockdown intensified.

The purchasing managers' index figures show that growth for both UK services and manufacturing was decelerating in September, with businesses expecting a further slowdown to follow. This was at a time when the new Covid storm and restrictions on businesses and individuals were not expected to be as severe as has proved to be the case. Back in August the hope must have been that the worst was over and that renewed restrictions would be short-lived. Now the realistic expectation has to be that new restrictions will be substantial and with us for a minimum of six further months. In retrospect the months of July and August can be seen as the lull between two Covid storms.

In its latest commentary, the Fraser of Allander Institute (FAI) refers to a remarkably wide range of plausible scenarios. This spread is entirely understandable and appropriate. At their most optimistic they see lost output in Scotland recovered by mid-2021. A lovely thought but dream on FAI! Given the scale and likely duration of measures now in place, recovery in such a short period of time appears wildly unrealistic. At the other extreme Fraser suggests that full recovery could come as late as 2024. We must hope not, but accept the uncertainties. A full return to normal working will not be feasible before an effective vaccine is available for all; and the latest scientific view appears to be that this will not be the case until well through 2021.

The FAI has got it right in saying that the weight of expectation is "on the more pessimistic outlook" and that our economy is likely to "remain in limbo for at least the next six months". That realistic view points to the necessity of further remedial action by governments to minimise the rise in unemployment and extent of business failures.

The new measures recently announced by the UK Chancellor are most welcome. He is about the only member of the UK Cabinet who appears to have some idea as to what he is doing and why! However, inevitably, the new scheme of assistance to part-time working cannot be as effective in holding back the tide of business failure and rising unemployment as the furlough scheme has proved. Given that the level of debt to GDP in the UK has passed 100% and is still skyrocketing, continuation of that scheme for the whole economy was deemed simply not affordable.

We now have increased global economic risks to add to the domestic uncertainties. We know that there is a significant risk of the UK exiting the EU without a trade deal with our former European partners – or indeed with the USA and the other economies that matter most to us all.

But now we see other huge global risks emerging. What is going to happen in the USA with an election pending whose result might not be accepted by the incumbent and that incumbent now diagnosed with Covid as an "obese 74 year old"? Relations between the USA and China have deteriorated sharply, as indeed have political and economic relations with practically all other economies of significance.

Apologies for yet again appearing as the prophet of doom, but it is difficult to think how the economic outlook for the winter ahead could be bleaker.

At this stage the UK and Scottish governments should be working together to develop the most effective and affordable policies to minimise the rise in unemployment, the extent of business failure and the pain for suffering households. Instead the UK Government has decided not to produce a Budget later this year. This presumably means no thoughtful and constructive debate on policy options or management of the public finances.

The Scottish Government is required to produce a Budget early in 2021 and must now do so without the required information on the level of block grant to be anticipated or the UK forecasts for revenues from taxes devolved to Scotland. Pity the poor Scottish Finance Minister trying to bake the Budget cake without any information on key ingredients.

But the failure to think through transparently the way forward on economic and fiscal policies is much more disturbing. Should we be developing support measures targeted to sectors suffering most? Should the debt maturing under the support schemes set up earlier this year be rolled over or partially written off or converted to state-owned equity – at least for sectors where recovery is still an aspiration rather than an expectation? Is now the time for increased taxation on those who can afford to bear more of the cost? Have we the capacity and the will to assist the millions who are set to become unemployed to develop skills to help them back into employment in the new world ahead?

Producing a UK Budget in November could have generated much needed reflection.