Recession fears for Scotland as UK economy grows

Scotland economy - credit Holyrood

Scotland's economic output shrank in the final quarter of last year while the UK grew, official figures have shown.

The output of the Scottish economy contracted by 0.2 per cent during the fourth quarter of 2016, and if it contracted again in the first quarter of this year, Scotland will be in recession.

Output across the UK grew by 0.7 per cent during the same period.

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Output in the services industry in Scotland flatlined, while production contracted by 0.9 per cent and construction contracted by 0.8 per cent. 

The Scottish Government has blamed Brexit for the figures, while opposition parties have attributed it to a focus on independence in government.

Meanwhile businesses warn the figures are "warning bells" for both governments.

Finance Secretary Derek Mackay said Scotland faced “continued headwinds" such as the slowdown in the oil and gas sector which has had an impact on the supply chain.

“Scotland enjoys resources few nations can match, including one of the most highly educated workforces in Europe, a long standing reputation for innovation and an internationally-recognised brand," he said.

"We will continue to do all we can to support growth in the Scottish economy. For example, our £500 million Scottish Growth Scheme to stimulate investment in new and early-stage businesses and investing in our £6 billion infrastructure plan.”

But Scottish Conservative shadow finance secretary Murdo Fraser said the figures were "deeply worrying".

"Nicola Sturgeon's Scottish Government must take responsibility for this mess," he said.

“She has made Scotland the highest-taxed part of the UK and created more instability and uncertainty with her threat of a second referendum."

Scottish Labour's Jackie Baillie said: "Rrather than focusing on boosting growth by investing in the economy and creating jobs, Nicola Sturgeon is swanning around the US talking up the prospects of another independence referendum."

Liz Cameron, Chief Executive of Scottish Chambers of Commerce, called for "an urgent change of policy" to respond to the figures.

"The Scottish Parliament has just introduced a Budget in which medium and large businesses pay a higher rate of business rates than they would in England and where Scottish higher rate taxpayers pay more tax than they would anywhere else in the UK," she said.

"The Scottish Government is also planning higher planning fees, a potential new infrastructure levy and the returns from the Apprenticeship Levy are also less direct than for businesses in England.  These additional costs for Scottish businesses are only now being felt, so could result in an even less competitive business environment in Scotland this year."

The Federation of Small Businesses in Scotland suggested the Scottish Government were focused on inward investment over supporting local businesses in communities.

Scottish policy convener Andy Wilcox said: “If Scotland is to avoid recession, we need to see action from governments in Edinburgh and London to boost local firms. Scottish Government and UK Government Ministers need to avoid fixating on inward investment – and put real effort into developing genuinely resilient local economies.”

Professor Graeme Roy, Director of the University of Strathclyde’s Fraser of Allander Institute, said the research institute had warned of the fragility of the Scottish economy.

"With any Brexit uncertainty affecting the UK as well, it’s hard to argue that Scotland’s relatively weaker performance can be explained by the outcome of the EU referendum," he said.

“While the downturn in the Oil and Gas sector remains part of the explanation, it is difficult to ignore the substantial declines in construction over the past year or in Manufacturing - with all areas of manufacturing, not just those tied to the North Sea supply chain shrinking during 2016. A new concern is the exceptionally weak performance in the all-important Scottish services sector, which saw no growth at all during the final three months of 2016."