Scotland’s economic growth at new record level

Scotland’s resurgent economy has bounced back to eclipse its pre-recession peak and reach a new record high, official statistics have shown.

Alistair Carmichael said that while it was disappointing to see unemployment rise, the news came against a backdrop of record overall employment. Picture: TSPL

And there was more good news as the numbers of Scots in work reached a record high of 2.587 million, other figures revealed.

But wage rises of less than half the inflation rate mean hard-pressed families are seeing little benefit as the “cost of living” squeeze continues, unions and anti-poverty groups said.

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Scotland’s economy has taken a hit in recent years, continually dipping in and out of downturn, as the impact of the 2008 financial crisis hampered business growth and saw thousands of jobs lost.

The latest figures show, however, that the country’s gross domestic product (GDP) grew 1 per cent over the first three months of the year, which was faster than the UK. Over the year, Scotland’s GDP grew by 2.6 per cent, the fastest growth in three years.

A boom in financial services was partly behind the improvement, figures showed, along with the Grangemouth refinery’s return to action after industrial action saw it shut down last year.

Finance secretary John Swinney said: “Nearly six years on from the start of the financial crisis, our economy is now larger than before the downturn.

“Output in Scotland is at record levels and we have exceeded our pre-recession peak at least one quarter ahead of the UK.

“The improvement in our economy has been broad-based with welcome signs of growth in manufacturing, up 3.4 per cent, and services, which account for over 70 per cent of our economy, up 0.9 per cent.”

Scotland’s output is now 0.4 per cent above its pre-recession level, while the UK figure for the same period was still 0.6 per cent below pre-recession levels. The largest growth came in the production sector which grew by 2.1 per cent, driven by a 3.4 per cent rise in manufacturing.

The services sector also flourished as a result of strong growth in financial and insurance activities (3.9 per cent).

Petrol, chemical and pharmaceutical production was up by (14.1 per cent) after the Grangemouth plant came back on line in the aftermath of last year’s industrial action, which halted production. This sector had shrunk in the previous quarter as a result of the shutdown.

The construction industry is in poorer shape, shrinking by 1 per cent in the first quarter, compared with growth of 1.5 per cent across the UK.

Conservative housing spokesman Alex Johnstone MSP said: “This decline, which is putting thousands of construction jobs at risk, is a reminder the SNP has not done enough to encourage investment in Scotland’s housing market.”

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said future investment will be “essential” to continue the return to growth.

“Particular attention should be paid to monitoring the skills shortage in some sectors to maintain the path of growth,” she said.

But the long-awaited recovery just emphasises the depth of recession into which the economy sunk after the financial crash, according to leading Scottish economist Professor John McLaren, an honorary professor at Glasgow University.

“After six years it’s a about time,” he said.

“I would not say it’s a huge achievement and it just highlights how bad things have been that’s it’s take this long to get back to where we are.”

Wages grew at a record low of 0.7 per cent, separate figures also showed yesterday, re-igniting fears of a “cost of living crisis”, among hard-pressed Scots.

It came a day after an unexpectedly sharp rise in inflation to 1.9 per cent for June was announced, its highest level since the start of the year.

Official forecasts revealed by Chancellor George Osborne in March’s Budget revealed that pay was finally expected to overtake inflation later this year but yesterday’s figures mean this is unlikely as soon as hoped.

Peter Kelly, director of Scotland’s national anti-poverty network the Poverty Alliance, said: “Economic growth alone is not enough especially when it is doing little to benefit the lives of ordinary families.”

An estimated 372,000 working Scots earn below the living wage, about the 17 per cent of the workforce, a recent report found.

Flatlining wage levels could even put the brakes on any move to raise interest rates from 0.5 per cent, where they have been held for more than five years.

Grahame Smith, Scottish Trades Union Congress general secretary, urged caution over the return to growth.

“It is good that Scottish GDP is now above pre-recession levels,” he said. “However, it is complacent and somewhat misleading to crow about record levels of output.”

Analysis: Rise in full-time work is particularly encouraging indicator

The Scottish economy is at last showing signs of robust improvement. Output has passed its pre-recession peak. It grew by a full per cent in the first quarter of 2014, taking its level to 0.3 per cent above that achieved in the second quarter of 2008. Manufacturing output increased by a substantial 3.1 per cent, while finance and business services, which account for more than one quarter of Scotland’s output, grew by 1.5 per cent.

Employment rose to 2.59 million – its highest level since 1992, when consistent records began to be collected. And though unemployment rose by 13,000 to 192,000, this was the result of more Scots actively seeking work, rather than through job losses. One explanation of simultaneous increases in employment and unemployment is an unusually big influx of students into the labour market. Most students are classed as inactive when they are studying. Some have found jobs since graduation, increasing employment. Others are still looking, increasing unemployment.

Particularly encouraging was the increase in full-time jobs. One of the characteristics of the recession was the replacement of full-time with part-time jobs. But in the 12 months to April 2014, full-time jobs increased by 45,000, while part-time employment fell by 11,000.

In the first quarter of 2010, more than one quarter of Scottish workers – 26.2 per cent – were employed in the public sector. Four years later, just over one fifth – 21.2 per cent – of Scottish jobs are in the public sector.

• Analysis by David Bell; Professor of Economics at the University of Stirling

Analysis: Work must pay enough to meet rising family bills

Higher employment and a growing economy are crucial to reducing poverty, but on their own they will not be enough. Sluggish wage growth, limited working hours and the high cost of essentials such as housing and childcare are hurting Scotland’s low-income families and putting its record on lower poverty in peril.

The decline in affordable housing in Scotland accounts for much of this problem. One quarter of poor households now live in private rented homes, up from one in ten a decade earlier, and housing costs in the sector account for around 23 per cent of household income. This eats up precious income at a time when wages have fallen way behind costs, and state support to top up low wages and high rents has been held down.

So we look for a jobs-rich recovery to make up the lost ground. Scotland’s employment rate could reach 80 per cent by 2025. At current population levels, this would mean an extra 300,000 jobs in the economy.

But even then, one in seven adults and children, around 600,000 people, could still be below the poverty line – even if most of those new jobs are full-time.

Two-thirds of those below the poverty line would be in working families.

We need to ensure work pays enough to be a route out of poverty. Housing costs, rates of pay and the tax, tax credit and benefit systems are all implicated in meeting this goal.

• Analysis by Jim McCormick; Scotland adviser to the Joseph Rowntree Foundation