These days, you can’t look away for five minutes. The dramatic delay of the crunch EU Withdrawal Agreement vote in the Commons; Theresa May’s desperate whistle-stop mission around European capitals, as embarrassing to watch as it was humiliating to endure; a no-confidence vote triggered by rebellious Tory MPs; then, just before the 9am news yesterday the Downing Street rostrum is trundled out for the PM’s “I’m fighting on” declaration.
Barely had the day begun than we were reeling from it all. And then what? Yet another extension of Brexit Hell – the crisis with no end.
Pity Scotland’s Finance Secretary Derek Mackay who had to give his budget to Holyrood amid the din and cacophony of the greatest political crisis for a generation. This was the time for him to hit the high notes. He might have been Chopin playing etudes on the piano. But who could hear a note amid the thunderstorm?
It is hardly surprising, amid this bombardment of events, that a strange paradox in everyday Scottish life has unfolded. It was barely mentioned in the Scottish budget yesterday. It is one that has defied the most sophisticated forecasts and has yet to yield a credible explanation.
Put simply, it is this: how is it that unemployment in Scotland has fallen to the lowest level recorded, and pay growth across the UK has reached the highest level for a decade – and yet spending in our high streets fell last month – this despite a blitz of ‘Black Friday’ promotions and a rising onslaught of Christmas TV jingles?
By arguably the most important measure of our economic well-being, we have good news to celebrate. Figures this week showed that in the three months August to October, Scotland’s unemployment rate fell to 3.7 per cent, 0.4 percentage points down on the previous quarter. It now stands lower than the UK rate of 4.1 per cent and is the lowest jobless rate in Scotland on record.
Previous Scottish administrations would have declared a national holiday to mark such an achievement. And although overall employment fell very slightly over the quarter, Scotland continues to outperform the UK on employment for females (71.3 per cent against 71.2 per cent for the UK) and for young people (58.8 per cent here compared with 55.9 per cent for the UK overall). Meanwhile, a near-record 848,000 vacancies UK-wide suggests companies remain keen to employ.
These figures are all the more startling given the relentless gloom and foreboding over Brexit and the black cloud of uncertainty that protracted negotiations with Brussels have cast over business investment and expansion.
Scotland’s Brexit Secretary Mike Russell has lost no opportunity to warn of gloom and catastrophe set to befall us on a ‘no-deal’ outcome. In this, he has if anything ‘out-doomed’ the Bank of England’s Mark Carney. Indeed, if there was ever to be a Central Bank of Scotland, Mr Russell would be the prime candidate for Governor, warning us of our bleak debt-ridden prospects while expounding on the perils of the bond yield curve inversion (as if).
So, within one paradox lies another: if our future is so appalling, why have so many companies persisted in hiring more staff?
If the fall in unemployment was not cheering enough, pay growth across the UK overall reached the highest level for a decade. Both total and regular annual earnings growth climbed to 3.3 per cent in the three months to October. Regular earnings growth was 3.5 per cent in October while total earnings growth spiked to 3.8 per cent, boosted by higher bonus payments.
And real, after-inflation earnings growth is looking healthier, rising to 1.1 per cent in the quarter from 0.1 per cent in June – taking it to the highest levels since late 2016.
Falling unemployment and higher real earnings: what better background could there be for a consumer spending uplift – particularly in the approach to Christmas?
But retail spending is not buoyant at all. Figures released yesterday by the Scottish Retail Consortium showed retail sales in Scotland falling by 2.1 per cent on a like-for-like basis compare to November 2017 (when they were down by 1.3 per cent).
Total sales in Scotland were down by 1.6 per cent on November last year – the deepest decline for 21 months. And even adjusting for the estimated effect of online sales, total non-food sales are down 4.1 per cent on a year ago.
Said SRC Director David Lonsdale, “Retailers now have a nerve-wracking few weeks leading up to the crucial festive season, after what has been a bruising year for many.”
So what might explain the breakdown of the conventionally assumed relationship between employment, average earnings and high street spending? And if the extra money isn’t flowing into retail, where is it going?
Fractured consumer confidence may be part of the answer. Who can be surprised at the absence of a “feel-good factor” when every day – from the first news bulletins in the morning to last thing at night we are soaked in the minutiae of the Brexit imbroglio and are losing the will to live?
Households may well be taking heed of all those warnings of supply breakdowns, disruptions to medical supplies, food rotting in giant lorries on the M25 and companies including food retailers starting to hoard: all this could be impacting on consumer confidence and our predisposition to spend.
It could also be that most of that extra household income has been gobbled up by higher utility bills – gas, water, electricity and other essential spending items such as rail travel.
Apprehensive shoppers may also be holding off spending until the last few days of Christmas or deferring major purchases altogether until the last week of Christmas.
Meanwhile, the Scottish Fiscal Commission will deliver the detail of its economic forecasts today. It predicts economic growth of 1.4 per cent in 2018 and 1.2 per cent in 2019, reflecting stronger recent economic performance, a more positive prospect for earnings over the next few years and the fiscal expansion announced in the UK Autumn Budget.
The Fraser of Allander Institute says Scotland’s economy is on track to grow at its fastest rate since 2014 – assuming no Brexit debacle. What a caveat! Who could possibly assume that after a week like this?