Scots GDP battered by winter weather

THE brutal winter weather dealt a sharp blow to Scotland's GDP growth during the closing three months of last year and economists warn figures out this week will show a contraction of "at least" 0.5 per cent.

The Scottish Government is expected to reveal on Wednesday that Scotland's economy suffered a hit at least equal to the shock suffered by the UK economy in the fourth quarter of 2010. However there are fears that the economy north of the Border contracted even further, given that Scotland was exposed to heavy snow for longer, bringing many businesses to a halt.

Brian Ashcroft, of the University of Strathclyde's Fraser of Allander Institute, said: "There's a possibility that Scotland might have performed even less well (than the UK]. There was the weather and the difficult economic conditions seem to have trailed into January with the VAT rise. The figures may be just slightly worse - 0.6 per cent."

The Scottish quarterly figures will follow the latest forecast for the UK from the influential Ernst & Young Item Club, which is published tomorrow. The group will say that UK businesses are set to open the floodgates on spending, buoyed by confidence in the growth of global markets.

But it will also underline continuing doldrums for UK consumers. The group's economists expect real disposable incomes to fall for the second year running - a trend last seen in the mid-1970s. Unemployment is also expected to edge up to 8.3 per cent in early 2012.

Peter Spencer, chief economic advisor to the Item Club, said UK plcs "must play a central role in the UK's economic recovery" by releasing a "stockpile" of cash on their balance sheets equivalent to nearly 7 per cent of GDP.

"The purse strings are starting to loosen, with some spending on vehicles and other easy asset purchases beginning to take place," he said. "If UK companies want to increase their capacity and capitalise on the opportunities that come from an improving world economy, they will need to extend spending to plant and machinery, buildings and overseas market development.

"But the danger is that if corporate treasurers continue to build up the cash pile rather than the business, they will find themselves being bought up on the cheap by predators."

Mike Lenhoff, chief economic strategist at Brewin Dolphin, told Scotland on Sunday that strong, pro-growth economic policy and still-low interest rates in the UK, US and the Eurozone means there will be a continued recovery for corporate profits.