What is it that we have to fear? Employment, wages, retail sales, GDP growth and prospects for the next 12 months: such concerns are the stuff of economics. And on these, government forecasters and pundits alike should be able to elucidate and explain.
In fact, with all the warnings over Brexit and the continuing paralysing uncertainty over our EU departure, we have often been told the answers to these basic questions – and none of them good. But are we so sure?
There is as yet no clear explanation as to how, with a markedly sub-par economic performance, unemployment is still falling and numbers in work continue to hit all-time highs. It is one of the axioms of economics that growth creates jobs. But our growth rate is now forecast to fall to 1.2 per cent this year, less than half the long-term average rate of 2.25 per cent – yet employment keeps rising.
Across the UK, numbers in work at 32.7 million are up 1.5 per cent on a year ago. Unemployment is down 7.7 per cent at 1.3 million. And there are 854,000 unfilled vacancies.
Here in Scotland, the jobless total fell by 9,000 to 94,000 between November and January, taking the unemployment rate down to 3.4 per cent – and below the UK’s 3.9 per cent. Numbers of Scots in work rose 13,000 to 2.6 million, taking the rate up to 75.3 per cent, with jobless rates for women and young people at record lows.
Several explanations have been advanced. Companies have cut back on new labour-saving investment, opting instead to recruit more staff. Public sector infrastructure work is boosting jobs. And official GDP numbers may be underestimating growth in IT and the digital economy.
Much depends, of course, on the accuracy of GDP data. And here we must take care for latest revisions to data suggest that Scotland’s growth rate in 2017 was not just underestimated but grew at almost double the rate stated in previous official announcements.
For 2018 as a whole, the Scottish economy grew by 1.4 per cent, as did the UK’s. According to economist John McLaren, this time last year it looked like 2017 had been another bad year, with growth of only 0.8 per cent, less than half the 1.8 per cent seen for the UK. “However”, he notes, “revisions to the data have increased GDP growth for Scotland in 2017 to 1.5 per cent (compared with 2.1 per cent for the UK).
“It now looks like the Scottish economy seriously underperformed in 2015 and 2016 but since then (2017 and 2018) has returned to growth on a par with that of the UK as a whole, although still below the historical average.” This is thought to be due to the downturn in North Sea oil and gas activity, and in particular its impact on metal products and machinery manufacturing.
“Scottish growth in 2018,” he points out, “was double the 0.7 per cent that had been forecast by the Scottish Fiscal Commission (SFC) last May. Much of this better than expected performance can be put down to manufacturing, which grew by almost three per cent after three years of near static or falling output… In GDP per capita (standard of living) terms, Scotland grew by 0.9 per cent in 2018, marginally above the 0.8 per cent seen for the UK.”
And on his “Active Economy” measure, (essentially manufacturing and non-financial private sector services) this has grown at a healthier rate of 2.2 per cent in 2018.
When it comes to forecasting, readers at this point may be driven to call upon the services of Gary Anderson, the twice winning Scot of the PDC World Darts Championship for a more reliable throw at the board. But economic prediction has always been treacherous. Who would have predicted two years ago that Brexit uncertainty would drag on for so long, that companies would keep hiring staff or that inflation and interest rates would remain low?
Which brings us to the next paradox: the behaviour of retail sales. For months there has been little but woe from the high street. Each week has brought news of business failures and administrations and retrenchment and store closures by major retailers. Consumer morale has also been battered by warnings of Brexit slowdown and disruption. The GfK consumer confidence index in February was only marginally above its lowest level since mid-2013 seen in January and December.
Yet figures last week showed retail sales volumes up 0.4 per cent month-on-month in February after a 0.9 per cent jump in January and were up four per cent year-on-year. The underlying performance looked healthy, with sales volumes up 0.7 per cent on a three-month/three-month basis. Resilient retail sales raise the chances that the economy could grow by 0.3 per cent quarter-on-quarter in the first three months, rather than the 0.2 per cent expected.
As for the future, average earnings growth of 3.5 per cent continues to outstrip inflation (1.9 per cent) and there is little prospect of any rise in ultra-low interest rates for the forseeable future. In fact, real earnings growth has been on an upward trend since mid-2018 and currently stands at the highest level since late-2016. It is now up to 1.5 per cent – up from 0.15 in mid-2018 and the best level since late 2016.
Finally, the public finances continue to improve, giving Chancellor Philip Hammond more headroom for fiscal stimulus in his autumn budget should our departure from the EU – assuming there is one – prove as catastrophic as many fear.
There was a budget deficit of £23.05 billion over the first 11 months of fiscal year 2018/19, down an impressive 43.8 per cent year-on-year and the best performance for 17 years.
The improvement is forecast to continue with the OBR cutting the expected deficit for each year from 2018/19 to 2023/24 by a cumulative £29.9bn on the assumption that the buoyancy in recent tax receipts will endure. Lower market interest rates also reduce debt interest payments.
So the forecasters have nothing to fear, it seems – so long as they turn a blind eye to further Commons chaos, a prime ministerial downfall, a collapse of the government and a general election.