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Concern after drop in GDP

Downturn in Scottish economy sparks recession fears

Derek Mackay

Warning: Derek Mackay

The Scottish Government has warned of a possible recession after figures released today showed the gross domestic product (GDP) had fallen by 0.3% in the second quarter.

The drop between April and June, which comes after a period of sustained economic growth, mirrors the contraction in the wider British economy and has been blamed on uncertainty over Brexit.

Compared to the same quarter last year, Scotland’s GDP grew by 0.7%.

Growth (0.6%) in the first quarter in 2019 was supported by a notable acceleration in manufacturing sector output as firms stockpiled and moved to complete orders prior to the original Brexit deadline at the end of March.

Two sub-sectors of manufacturing (food and drink, pharmaceutical and related industries) account for more than half of the 0.3% contraction of this quarter. Manufacturing output in these sectors fell back after a strong first quarter.

During the second quarter output in the construction sector contracted by 2.2%, output in production contracted by 1.1%, and output in the services sector grew by 0.1%.

Economy secretary Derek Mackay has warned that a departure from the European Union without a deal could plunge Scotland into the dark days of a recession.

Laying the blame for the slump in the economy at the door of the UK government, he said: “Given the repeated warnings from business organisations and the contraction across the UK in the same quarter, it is unsurprising, but deeply frustrating, that we are now seeing the Brexit impact on the Scottish economy.

“The responsibility for this contraction lies entirely with the UK Government.

“There can now be no doubt that any form of Brexit will damage our economy and a ‘no deal’ Brexit would be disastrous for Scotland and could push the country into recession.

“Scotland did not vote for Brexit but our economy is paying the price for it and we are likely to see continued volatility as businesses try and prepare for the looming October Brexit deadline and the increasing threat of a ‘no-deal’ exit.

“We are already taking steps to protect jobs and our economy from Brexit but not every impact can be mitigated. We will continue to stand firm against efforts to take us out of the EU against our will.”

Inflation falls

The Office for National Statistics said the Consumer Price Index fell from 2.1% to 1.7%.

Head of inflation at ONS Mike Hardie said: “The inflation rate has fallen noticeably into August, to its lowest since late 2016. This was mainly driven by a decrease in computer game prices, plus clothing prices rising by less than last year after the end of the summer sales.

“Annual growth in house prices slowed to its lowest rate since September 2012, with four of the nine English regions now seeing prices falling over the year.”

Reaction to Scottish GDP

Scottish Conservative shadow economy secretary Dean Lockhart said: “In true SNP style, whenever things look bad Derek Mackay reaches for the Brexit crutch.

“That’s a cowardly way to govern. Scotland’s economy has continually struggled in comparison to the rest of the UK, year after year.”

Andrew McRae, the Federation of Small Businesses’ (FSB) Scotland policy chairman, said: “These figures are disheartening if unsurprising. Across the country, firms are either pouring resources into Brexit planning or postponing critical decisions until our political leaders get their act together. That means that they’re not using every tool at their disposal to create jobs and drive growth.

“Holyrood decision-makers need to take note of the storm clouds on the horizon. The upcoming Scottish Government budget must focus on providing much needed stability and at every turn Ministers need to think twice about putting additional burdens on local firms.”

Professor Graeme Roy at the Fraser of Allander Institute said: “Economic activity has proven particularly volatile this year as Brexit uncertainty has affected the pattern of business activity.

“In the first three months of the year we saw activity boosted by firms stockpiling supplies in the event that the UK exited the EU at the end of March. When this did not come to pass, and the next deadline was pushed to October 2019, we saw firms run down these stockpiles leading to lower levels of activity. 

“This was most clearly evident in activity in the production sectors of the economy. We saw this in the UK wide data, and we see this in the data released this morning for Scotland.”

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