Bill Jamieson: Mini boom or left the poorer after the election?

Economic slowdown? Scots £1,600 worse off under Brexit than they might otherwise have been? We’re well used to the gloom.
Mike Russell has become Brexit's doommonger in chief. Photograph: Andrew CowanMike Russell has become Brexit's doommonger in chief. Photograph: Andrew Cowan
Mike Russell has become Brexit's doommonger in chief. Photograph: Andrew Cowan

But so much for yesterday’s forecasts. Now the talk is of a surge in the pound, a rapid pick-up in growth and a renewed rise in numbers employed.

Barely a week into the election campaign and conflicting forecasts are already coming in thick and fast as to what the outcome may bring for our economy and our prospects.

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Reports circulated over the weekend that global banks and investment houses are “preparing for a UK economic boomlet and an explosive rise in sterling, betting that the general election will finally break the deadlock over Brexit”.

The pound has already risen from “bargain-basement” lows to a six-month high of almost $1.30 since the announcement of a deal with the EU. But in the minds of some currency experts “it remains massively undervalued” and could vault much higher.

David Bloom, veteran currency strategist at HSBC, says “a lot of investment has been mothballed because of uncertainty but we could see these mothballs wither away quickly once there is clarity. It could be radical.” He reckons the fair value of sterling is at between $1.45 and $1.60.

Stephen Jen, an adviser to Asian sovereign wealth funds, says the tide has now turned, predicting a level of between $1.40 and $1.45 within reach by the end of the year. “Years from now people are going to be looking back and shaking their heads, asking how it ever got so low.”

Scots can be excused a vigorous shaking of heads on reading all this. For the past three years gloomy economic forecasts have rained down from the Treasury, the Bank of England, the National Institute for Economic and Social Research and, nearer home, from the Fraser of Allander Institute and the Scottish Government. And the most persistent purveyor of Brexit gloom has been the Scottish Government’s Brexit minister Mike Russell.

He warns that Boris Johnson’s Brexit deal, far from triggering a mini boom, will cost everyone in Scotland £1,600 per year. The figure features in a document setting out the Scottish Government’s assessment of the deal. It is based on assumptions about what might happen if there is a Free Trade Agreement with the EU.

It foresees total output of the UK economy by 2030 being six per cent below the level it would otherwise have reached had the UK remained on the growth trajectory enjoyed as a member of the EU. This, it says, would equate to £9.1 billion a year. Dividing this sum by the population and it arrives at a hit, or loss, of £1,600 per head.

So: an economic mini-boom – or a slow but perceptible loss of economic well-being per head relative to what we might otherwise have enjoyed? As we are set to be bombarded with such conflicting forecasts over the next few weeks, which is the more likely?

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I would counsel caution. For both rest on assumptions bordering not just the heroic but the fantastical. I am reminded of Rudyard Kipling’s admonition:

If you can dream – and not make dreams your master;

If you can think – and not make thoughts your aim;

If you can meet with triumph and disaster

And treat those two imposters just the same…

Happy Scenario One rests on the assumption of a Conservative victory – an outcome few pollsters currently dare to predict with confidence. It assumes the spectre of a neo-Marxist Corbyn administration has been slain, the Liberal Democrats will be less voluble and that Johnson’s withdrawal deal secures safe passage through the Commons and Lords.

It also presupposes that the legacy of three and a half years of Brexit blight on business investment and expansion can be quickly reversed and overcome; that the effects of the US-China trade tariff wars and global economic slowdown can be mitigated and that markets will give the new administration the benefit of the doubt.

Arguably most heroic of all is the assumption that UK politics will be quiescent, overlooking the potential gale of uncertainty unleashed by a strengthened SNP presence at Westminster and the greater clamour for a second Scottish independence referendum. With a renewed challenge to the UK’s political union, what prospect then of a pick-up in business confidence north of the border and a revival in inward investment?

If Happy Scenario One seems heroic, Mike Russell’s Gloomy Scenario Two is surely deserving of a wreath of laurels. A notable feature is that it rests on not one but two sets of forecasts – one is how the UK might perform out to 2030 under WTO rules, and another that the UK might remain on an EU trajectory were it to remain a member.

Note also that both assumptions seek to predict what might happen all the way out over the next ten years. Correct all the way out to 2030? Such is the pace and scale of changes in economic cycles and the impact of geopolitical events, that it is an achievement to be celebrated when an economic forecast proves to be accurate over one year, never mind ten.

Even setting aside the uncertainties over UK-EU trade negotiations, more often than not the UK’s economic fortunes are determined by forces and events affecting the global economy and outside of its control. This is especially the case now given the impact already being felt of US-China trade tensions.

Moreover, the SNP administration’s forecast seems, as BBC Scotland’s ever perceptive economics guru Douglas Fraser points out, to conflate average pay and a notional share per head of total national output. But part of that share goes to wages, part to profits, including some paid to foreign owners of assets in Scotland. Note also that it asserts an average per head hit: but such outcomes are rarely if ever identical across all households and individuals.

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So what may lie in store for Scotland’s economy? Arguably our best guide will be the detailed forecasts provided by Scottish Fiscal Commission. Its new set of economic and fiscal forecasts which provides five-year economic, tax and social security forecast, is eagerly awaited.

And the publication date? By a strange coincidence, it is currently scheduled for Thursday, 12 December – the same day as the general election. As if its task was not enough, no amount of polish will shift the swirling political mist over its crystal ball.