Brexit money board
manufactured goods imported from the EU, plus an additional month’s worth of finished manufacturing goods. Dr Gillespie forecasts that under this scenario, Scotland’s GDP could receive a 0.4 per cent boost during the current financial year due to the increased activity before Brexit. However, it would then suffer a 0.4 per cent hit in 2019-20 as business investment collapses, remaining in the red until at least April 2022.
Describing Brexit as the “main risk” to the Scottish economy, his report says businesses may also react to the uncertain environment by delaying purchases, investments and hiring decisions. “International investors may view the UK as a less attractive proposition,” it continues. “EU migrants may be discouraged from moving to, or may decide to leave, the UK. Banks may be less willing to lend to Eu-focused companies if the extent to which [the] future relationship undermines their business model [is] unknown.”
Theresa May Seven days from now, the UK is due to leave the EU, but that scheduled departure is now looking increasingly unlikely as the debate rages. The only certainty it seems can be continuing uncertainty in the short term, and so this Brexit Explained focuses on the economy. and what it could mean. As ever, join the debate online at scotsman.com/news/politics/brexit
And yet – despite this deep gloom on Brexit, Scotland’s economy has continued to grow and numbers in work are close to all-time highs. Economy secretary Derek Mackay declared earlier this month that “with Scotland’s economy continuing to grow throughout the year, it’s good to see the improving outlook for the oil and gas sector coming to fruition alongside the continued strong performance in our labour market.
“Scotland’s economy is strong and we are one of the top destinations for inward investment, whilst Scottish productivity has grown faster than the UK’S over the past decade.”
As for the UK overall, it’s worth noting that retail sales recovered in January after the fall in December while the labour market remains robust, with strong employment growth and falling unemployment – vacancies are at record levels and workers are enjoying real earnings growth.
Nor should our performance be seen in isolation. Eurozone GDP rose just 0.2 per cent in the final three months of 2018 within which German GDP was flat after a 0.2 per cent fall in the third quarter. Meanwhile Italy entered recession in the final three months of 2018. Overall, industrial production is falling quite sharply in the eurozone, and at a faster rate than in the UK. This strengthens the point of Brexiteers that global growth is stronger outside the eurozone and that is where our best long-term prospects for trade and investment lie.
Meanwhile, caveats need to be borne in mind when appraising the gloomier scenarios. First, the current outlook is volatile and any change in sentiment post Brexit would be likely to see a recovery in sterling and financial markets as overseas confidence recovers. The Chancellor has much fiscal firepower at hand to deploy later this year to give the economy a boost. The autumn Budget could see a planned cut to the 17 per cent headline corporation tax rate being brought forward, greater allowances for capital expenditure writeoffs and a material cut in business rates.
And recent forecasts have been edging up. Only last November, the Bank of England claimed that a no-deal Brexit could cost the UK economy between 4.75 and 7.75 per cent of growth over a three-year period, relative to what would happen under May’s deal. But he has recently changed his tune, telling the House of Lords economic affairs committee the effect of a no-deal Brexit on the UK economy in three years’ time would be between 2 and 3.5 per cent smaller than he had previously stated. The change is due to contingency plans and continuing signs of resilience in the manufacturing and service sectors.
So Brexit matters – but it isn’t the only thing that matters. The real cost of three years of Brexit uncertainty may be found in the neglect of other areas in need of pressing attention. Not least of these is the future funding of health, pensions and social care. At the turn of the century, these accounted for 30 per cent of all state spending. Over the next 20 years, that is set to rise to 50 per cent.
That means hard choices on tax – and a transformation of our productivity performance. Brexit is certainly our immediate challenge. But it is far from the only one, and on any longer-term perspective, may prove not to be the biggest.
“The real cost of three years of Brexit uncertainty may be found in the neglect of other areas in need of pressing attention”
Christine O’neill