Analysis: Uncertain times – the year in the economy
Concern has grown over the effect of Britain leaving the EU, but some think it would be a price worth paying
Economy - Image credit: Holyrood
On 23 June last year, Britain voted to leave the EU and Brexit has dominated the headlines ever since.
A recent YouGov survey of Leave voters found half aged over 65 would accept losing their job, or seeing a relative lose their job, as a price worth paying for leaving the European Union.
With concern growing over the economic consequences of leaving the EU, the polling company found that 61 per cent of Leave voters believe “significant damage to the British economy to be a price worth paying” for Brexit.
The poll was based on a sample of 4,918 voters, with 551 aged 18-24, 1,961 aged 25-49, 1,302 aged 50-64 and 1,104 aged 65 or over.
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While this might be an extreme example, it’s proof that Brexit and the uncertainty which surrounds it is still at the fore of many people’s minds.
In July, the International Monetary Fund (IMF) said UK economic growth was expected to be weaker than forecast this year.
The IMF downgraded the UK’s projected growth from its April estimate of two per cent to 1.7 per cent, while the figure for 2018 remains at 1.5 per cent.
Its update to the World Economic Outlook said the revision was a result of the “weaker-than-expected activity” in the first quarter.
The IMF identified the UK’s negotiations on Brexit as one of the “downside risks” that could affect global growth in the future.
A Treasury spokesperson said: “This forecast underscores exactly why our plans to increase productivity and ensure we get the very best deal with the EU, are vitally important.
“Employment is at a record high and the deficit is down by three-quarters, showing that the fundamentals of our economy are strong.
“We will continue to deliver greater prosperity and higher living standards for hard-working people across the country.”
Meanwhile new report from PwC, released in July, said ongoing political and economic uncertainty caused by Brexit was hitting business in Scotland.
The business adviser found that although economic growth held up better than expected in the six months following the Brexit vote, it slowed in the first half of 2017 as inflation rose sharply.
PwC projected that Scotland would see 1.2 per cent growth in 2017 and 1.1 per cent in 2018 – behind UK GDP growth of 1.5 per cent in 2017 and 1.4 per cent in 2018.
Lindsay Gardiner, regional chair for PwC in Scotland, said: “While some may see concern at the fact Scotland and Northern Ireland are at the bottom in terms of GDP improvement, there is actually very little separating most of the UK.
“This year the best growth we expect in any region – except for London – will see 1.5 per cent and it is 1.4 per cent next year.
“Where concerns should perhaps be focused is around wage growth as many are offsetting limited growth through increased borrowing – which may have a longer-term impact via interest rate rises or employment downturn.
“It’s too early to speculate on how the Brexit talks are going to impact growth, however, current exchange rates have some offsetting benefits for net exports.
“The main message we are discussing with businesses at the moment is to consider where Brexit may have an impact and to make contingency plans for a number of scenarios, particularly those who may face changes in customs tariffs or employment challenges.”
Another change which hit the headlines this year was the announcement that the age which people can claim their state pension in the UK should be raised to 68 from 2037, seven years earlier than previously announced.
The Scottish Government has argued against raising the pension age beyond 66.
Finance Secretary Derek Mackay said: “We fundamentally disagree with the UK Government’s decision to raise the state pension age to 68 – this move will bring in changes seven years earlier than previously indicated, forcing millions of people to wait longer to access their entitlement.
“This is particularly worrying given some parts of Scotland have low life expectancy due to historic and deeply-ingrained public health challenges.”
SNP MPs were told that the Scottish Government would have powers to provide extra financial help to those approaching retirement.
However, the picture is not all bleak.
In July official figures showed services in Scotland grew by 0.3 per cent, production grew by 3.1 per cent, and construction contracted by 0.7 per cent.
Economy Secretary Keith Brown said the statistics “reinforce the fact that the fundamentals of Scotland’s economy are strong”.
He said: “Scotland’s output is now six per cent above the pre-recession level and unemployment is at its lowest ever level.
“Since late 2014 our growth rate has been impacted significantly by the fortunes of the North Sea with around two-thirds of the slowdown in 2016 attributed to the onshore impact of lower oil prices.
“The figures show a rise in output in industries linked to the North Sea for the first time since 2014. While there is no room for complacency, these figures – alongside a number of recent business surveys – indicate that there is growing confidence in the sector.
Brown added: “The Scottish Government will continue to use all of the powers at our disposal, including our £6.5 billion infrastructure plan and our new £500 million Scottish Growth Scheme which opened for bids last month.
“We will also continue to invest in the doubling of free childcare and offer support for key industries including oil and gas, manufacturing, tourism and new technologies.”
The figures follow concerns over the Scottish economic performance, with the Fraser of Allander Institute recently warning it appeared to be “stuck in a cycle of weak growth”.
Scotland’s food and drink exports also increased by over 11 per cent in the first quarter of this year, compared with the same period in 2016.
In the first three months of 2017, food and drink worth £1.2bn was exported, an increase of £124m on 2016. The EU remains Scotland’s largest regional export market outside of the UK, with exports growing by £50m.
Rural Economy Secretary Fergus Ewing said: “2016 was a record year for Scotland’s food and drink exports and these new figures clearly show that the sector is going from strength to strength.
“Food exports, for example, have grown by 14 per cent on the same period last year, which is a testament to the fantastic work being undertaken in partnership with the industry to increase access and open up new markets.
“What is clear from these figures is that maintaining access to the EU single market is crucial for our food and drink producers and our wider economy.
“Losing access will put Scottish industry at a significant disadvantage, exposing business to damaging export tariff barriers and regulatory requirements.
“Scotch whisky and Scottish salmon were the top two UK export products by value in the first quarter of 2017, making up 22 per cent of the value of total food and drink exports from the UK.
“The Prime Minister must include the Scottish Government at the Brexit negotiating table, with the starting point for any new approach the continued membership of the single market and customs union.”
Meanwhile, over 750,000 Scottish homes and businesses can now connect to fibre broadband thanks to the £428m Digital Scotland Superfast Broadband programme.
This means that more than 90 per cent of Scotland now has access to fibre, moving towards the Scottish Government’s commitment to deliver 100 per cent superfast broadband access across Scotland by 2021.
The Scottish economy also grew by 0.8 per cent in the first quarter of 2017, with expansion in the manufacturing sector and increased stability in the oil and gas sector leading to the highest quarter of growth since the end of 2014.
The figures mean the economy rebounded from negative growth of 0.2 per cent in the previous quarter to grow faster than the UK rate of 0.2 per cent.
But the Scottish economy lagged behind the UK on an annual basis, compared to the same period last year, with Scotland seeing 0.7 per cent growth, compared to two per cent across the UK.
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