Scotland’s economy has been basking in summer sunshine this week. New data showed that the economy grew by 0.4 per cent in the first quarter, faster than in the UK as a whole.
In fact, on an annualised basis, Scottish GDP grew by what counts as fast these days: 1.2 per cent. That compares with an anaemic 0.3 per cent for the UK as a whole.
True, the latest employment numbers for Scotland suggest a rise in joblessness between March and May of 8,000. But the early labour market numbers, which are compiled using an unreliable survey technique, are often wonky.
If I was to worry about anything it is the curious drop in construction output in the first three months, though it is still 2.3 per cent up on the year. This is in line with the latest Royal Institution of Chartered Surveyors’ survey (for Q1), which reports weaker prospects for output and employment.
Construction is one reason Scotland has outperformed the UK since the 2009 economic crisis. This is because the Scottish Government deliberately accelerated capital spending in 2008-10, in a bid to offset Westminster cuts.
True, the net injection amounted to only £323 million. But that vote of confidence leveraged in £2.5 billion of private sector cash in building projects. Result: Scotland’s construction workforce has actually expanded by 10 per cent over the past three years.
The house building market, while hardly buoyant, has also shown signs of life. Some 13,541 new homes were started in the year to December – the first increase in a calendar year since 2006. Private housing alone starts were 4 per cent higher.
What could be going wrong? Our ever-resourceful finance secretary, John Swinney, might have used up his fiscal box of tricks – though I doubt it. Or we could be seeing a winter blip. Construction output in the UK as a whole surged in April by 4.6 per cent, following a very disappointing first quarter. There is also good evidence that house builders are benefiting from the Chancellor’s “Help to Buy” scheme – Barratt reports its sales rate is up 17.9 per cent in the first six months.
Meanwhile, next week sees the publication of UK growth figures for the second quarter. That should give us a better understanding of trends in the construction sector.
Carney leaves himself room to manoeuvre
Summer euphoria has also affected the world’s stock markets, after Ben Bernanke, head of the US Federal Reserve, did a sharp reversal of his plan to taper off infusing cheap money into the US economy.
The one person who didn’t get the memo was Mark Carney, now with his Canadian feet firmly under the big desk at the Bank of England. The latest Bank minutes reveal that Carney has corralled the monetary policy committee (MPC) into voting unanimously against additional quantitative easing (aka cheap money) – the opposite line taken by his predecessor Mervyn King.
Carney’s sudden dovishness obviously reflects the feeling the UK economic picture is improving, if hesitantly.
Alternatively, the unexpected unanimity on the MPC could just be a polite truce while Carney settles in.
My bet is the latter. With UK inflation numbers up and the Fed back in stimulus mode, Carney has lots of room to be more interventionist in stimulating economic growth. Which is, after all, why he was hired.