Glimmers of hope on economic horizon

Record employment figures, business optimism and upbeat CBI survey among reasons to be cheerful

Across both political and economic horizons, we have entered the most febrile and dangerous period for a generation. All the signs, both north and south of the Border, point to a slowdown in growth, with particular worries over intensifying pressure on household incomes.

Last week the Fraser of Allander Institute, Scotland’s leading independent forecasting group, warned that the economy here remains precarious. Output declined in the final three months of last year and most business surveys and indicators of economic confidence suggest any growth in the first six months of 2017 has been fragile at best. Scottish government figures for the first quarter are due this week and whether or not Scotland has entered recession – two consecutive quarters of falling output – is in the balance. The FOA predicts growth of just 1.2 per cent this year, and 1.4 per cent in 2018.

And while we continue to underperform the UK, prospects down south are little better. Against a troubling background of post-election political uncertainty, and with a prolonged Brexit drag on business and household confidence, new forecasts from the Centre for Economics and Business Research (CEBR) predict the UK economy overall will grow by just 1.3 per cent this year – a substantial downward revision from an earlier forecast of 1.7 per cent. The forecast for 2018 has also been revised down to 1.2 per cent, putting us on course for the slowest GDP growth since 2009.

However, there are sparks of hope. There is a record high proportion of people in work. Just two weeks ago the CBI issued a remarkably upbeat survey on manufacturing order books – exports in particular.

In Scotland, business sentiment remains broadly optimistic, prospects for the food and drink and tourism sectors particularly hopeful. Meanwhile, inward investment projects won by Scotland hit the highest for a decade.

And at UK level, the CEBR assessment is far from downbeat on the Brexit outcome. It believes a deal with the EU will emerge and that confidence will rebound, leading to stronger growth after 2018. More immediately, it says the Bank of England is likely to keep interest rates unchanged and sees no rise in rates until the end of 2018. Arguably most encouraging of all is a distinct change of mood both in Scotland and across the UK for politicians to attend much more closely to promoting economic growth.