Scottish economy fears as UK growth revised downward

Rising inflation is taking its toll on consumer spending. Picture: Ian Georgeson
Rising inflation is taking its toll on consumer spending. Picture: Ian Georgeson
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Fears that Scotland’s economy fell into recession during the opening months of 2017 have intensified after official figures for the UK were revised downwards.

Last month it emerged that Scottish economic output fell by 0.2 per cent in the final quarter of 2016 as the critical service sector stalled. A second quarter of contraction would throw the economy into recession.

Yesterday’s data from the Office for National Statistics (ONS) revealed that UK gross domestic product (GDP) grew by just 0.2 per cent in the first quarter of this year, revising down the figure from its initial estimate of 0.3 per cent.

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Economists had been expecting GDP growth to slow from 0.7 per cent in the fourth quarter of last year, but they had pencilled in a figure of 0.4 per cent for the January-to-March period.

First-quarter readings for the Scottish economy are due to be released in July but given the degree of separation in the closing months of 2016 and the marked slowdown witnessed UK-wide in the first quarter of 2017, the chances of Scotland avoiding recessionary territory look slim.

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ONS officials said yesterday: “Consumer-facing industries such as retail and accommodation fell and household spending slowed.

“This was partly due to rising prices. Construction and manufacturing also showed little growth, while business services and finance continued to grow strongly.”

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The services sector put downward pressure on GDP after output was revised down to 0.2 per cent for the first quarter. It means that the powerhouse sector, which accounts for about three-quarters of the UK economy, slowed substantially from the 0.8 per cent growth seen between October and December last year.

Household spending was also dragging on overall growth for the first three months of the year after eking out its lowest quarter-on-quarter growth since 2014 at 0.3 per cent.

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Oliver Kolodseike, senior economist​ at the Centre for Economics & Business Research, said: “With inflation outstripping wage growth, households will feel a squeeze on their spending power this year which is likely to limit consumer spending somewhat.

“We have already seen the impact to some extent as reflected in a particularly poor performance in retail sales over the first quarter.”

Samuel Tombs, chief UK economist of Pantheon Macroeconomics, said the downward revision to first-quarter GDP meant that the UK was now “tied at the bottom of the G7 growth leaderboard with the US and Italy”.

Ian Stewart, chief economist at Deloitte, added: “Just as expected, higher inflation is squeezing incomes and spending. UK growth is likely to tilt away from the consumer towards exports, manufacturing and investment this year. This should keep the UK economy growing at a similar rate to last year.”

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