Ian McConnell: Gloom-mongers focus on Scotland but UK picture is truly miserable

Even though, in reality, the limited extent of devolved powers means that Scotland’s economic performance, good or bad, is not determined at Holyrood. It depends on the UK’s fortunes.

And, in recent years, the UK’s economic performance has been utterly miserable as the Conservatives’ ill-judged austerity programme and the Brexit shambles have come home to roost.

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The extent of the UK’s economic woes have been underlined in recent days. These revelations have changed dramatically views among financial market players and economists about the interest-rate outlook.

Only a few weeks ago, a further quarter-point rise in UK base rates when the Bank of England’s Monetary Policy Committee meets next week had been viewed as very probable indeed. Now it is viewed as much less likely.

Figures published last Friday showed the UK economy grew by only 0.1 per cent in the first quarter.

We heard a lot of noise, from people including Chancellor Philip Hammond, about the impact of the weather. The so-called “Beast from the East” weather system did bring freezing temperatures and heavy snow to the UK in late February and early March. But economists were obviously as aware of the weather as Mr Hammond and everyone else and had factored this depressing effect in as they forecast first-quarter growth of 0.3%. The actual expansion of 0.1% was one-third of this projection.

If the grim state of the economy were not such a serious issue, crushing the living standards and hopes of millions, it would have been almost amusing to reflect on the huge hoo-ha last month over the fact that Scottish growth in the fourth quarter of last year had been only 0.3%.

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This was only marginally adrift of a UK-wide growth rate of 0.4% for the same period but it caused a political storm, with dire warnings of how Scotland was so far adrift in terms of its performance and spurious claims that small differentials in income tax north of the Border were somehow responsible. It is always curious how there seems to be little, if any, mention in such a scenario by politicians of UK weakness or the protracted impact of the global oil and gas downturn on the North Sea and the broader Scottish economy.

External MPC member Michael Saunders, who struck a hawkish tone on interest rates during a visit to the University of Strathclyde’s Fraser of Allander Institute two weeks ago, argued weather effects tended to be reversed over the following month or two. He was one of two members of the nine-strong MPC who voted unsuccessfully for an immediate quarter-point rise in rates in March.

While weather undoubtedly weighed on output briefly in late February and early March, it is far from being the whole story behind the formation of the increasingly dark clouds over the UK economy.

This was highlighted by a survey this week from the Chartered Institute of Procurement & Supply, which revealed growth in the UK manufacturing sector had slowed sharply in April to its weakest pace in 17 months. While the weather in April might not have been amazing, it certainly did not weigh on manufacturing output. CIPS’s latest surveys of services and construction activity also point to major underlying UK economic weakness.

Growth in UK manufacturing employment slowed sharply in April to its weakest pace in 14 months. In terms of manufacturing sub-sectors, CIPS noted consumer goods had seen its first job cuts since February 2017, with its decline in employment the steepest for nearly six-and-a-half years. So much for the seeming hope among some Tory politicians of a manufacturing boom caused by more consumers buying British because the pound’s post-Brexit vote weakness has made imports more expensive.

CIPS’s survey also showed optimism among manufacturers about the prospects for increased activity on a 12-month view was at its weakest for five months.

The lack of optimism, among businesses and consumers, is surely inevitable. Consumers have been squeezed for so many years now by the Conservatives’ monumentally misjudged austerity programme, which is continuing apace whatever they might tell you.

Meanwhile, the Brexit fiasco is making businesses reluctant to invest and adding to consumer wariness about spending. The only heartening thing on the Brexit front is the way the House of Lords keeps defeating the UK Government.

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Sadly, the Brexit vote continues to wreak havoc on myriad fronts. A survey this week from the Scottish Building Federation showed growing concerns among construction companies about Brexit effects pushing up labour costs.

The SBF warned of the potential for the Scottish construction sector to lose labour to London, as employers in the UK capital addressed the loss of workers from other European Union countries because of Brexit.

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Fears that Scotland could lose skilled workers to other parts of the UK because of Brexit-fuelled labour market shortages were voiced in March by Tracy Black, the new head of the Confederation of British Industry north of the Border.

While the probability of an interest-rate rise next week might have reduced, any delay to the next increase in household borrowing costs hardly signals any kind of relief for consumers. Rather, if the next rate rise is pushed back a bit, this will be a reflection of just how grim the UK economy is, and the scale of the pressure on households.

Make no mistake: the economic storm clouds are about much, much more than the weather.