Scotland plc could escape the dreaded double-dip

SCOTTISH business figures insisted last night that the country’s economic recovery was still alive despite the shock news that the UK had fallen back into recession for the first time since the financial crash of 2009.

The surprise reverse was revealed by the Office of National Statistics, which confounded expectations to state that the economy shrank by 0.2 per cent in the first three months of 2012, mostly thanks to a large fall in construction work.

A recession is defined as two consecutive quarters of contraction. The economy fell by 0.3 per cent in the fourth quarter of 2011.

The figures show that, over the course of the last year, the UK effectively stalled, recording no growth at all, with only Italy performing worse among the G7 nations.

The surprise fall placed further pressure on Chancellor George Osborne yesterday, as economists and opposition parties laid the blame squarely on the public-sector squeeze which, they argue, has sucked life out of the economy.

In Scotland, the bad news was compounded by figures showing that a record number of Scottish firms went bust in the first three months of this year.

Accountant in Bankruptcy (AiB) reported 385 Scottish firms became insolvent or entered receivership in the last quarter, 37.5 per cent up on the previous quarter, and the equivalent of 30 firms a week.

With the eurozone adding to nervousness and limiting investment across the continent, yesterday’s figures will confirm concerns that the UK is set for an extended period of limited or no growth, as it “bumps along the bottom”.

Nonetheless, business chiefs sought to put a gloss on the poor news in the hope of limiting the damage from the figures.

In Scotland, analysts and ministers suggested that the recession may not have hit the economy north of the Border, because the fall in construction has been less steep.

GDP figures for Scotland for the first quarter of 2012 will not be available until later this summer, meaning it is impossible to say whether it, like the UK as a whole, is in recession.

In a speech in London, First Minister Alex Salmond suggested Scotland was not suffering as badly, insisting that Scotland performed “better economically than everywhere else in the UK bar south-east England”.

He was backed up by business figures last night.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said it was “fairly common”, on recovering from a recession, that economies slipped back temporarily.

She pointed to recent business surveys which suggest that, in Scotland, activity is now on the rise.

She added: “This negative picture of the first three months of 2012 is not one that we recognise in Scotland.”

Paul Brewer, senior partner in PwC’s Edinburgh office, said: “We should remember that today’s numbers are provisional and may be revised when additional data is analysed, so the final picture could be much less gloomy.

“Today’s surprise was the sharp fall in construction output, which fell by 3 per cent in the first three months of the year – a much weaker performance than other survey data indicaters.

“The performance of the Scottish construction industry has fared slightly better than the UK with growth of 5.9 per cent compared to 5.4 per cent in 2011, so we would hope that this trend bears out as the figures continue to be revised over the coming weeks.”

Across the UK, business leaders also sought to question the evidence of the figures.

John Cridland, CBI director-general, said: “This disappointing news comes as something of a surprise. Since the turn of the year, business confidence has improved and, while still challenging, underlying economic conditions also appear to have strengthened.”

Paul Mumford, senior investment manager at Cavendish Asset Management, said: “I very much doubt the slight contraction heralds a double dip in any real, meaningful sense. Whilst complacency must be avoided, so must the tendency to scare easily.”

But unions and opposition parties said the reality of a double-dip recession had to be laid at the door of the UK government and its austerity programme.

STUC general-secretary Grahame Smith said: “These are devastating figures for the coalition government.

“The STUC has consistently argued that government policy is making a bad situation worse and today’s statistics confirm our analysis to be correct.

“In the UK’s current economic circumstances, austerity is not a viable path to stability, growth and jobs. If the coalition government does not change track soon, it will inevitably consign the UK’s economy to a prolonged period of stagnant growth and high unemployment”.

In a bad-tempered exchange at Prime Minister’s Questions, David Cameron insisted that he could not sanction more debt-fuelled spending, given the spending deficit he inherited.

He said: “This is a tough and difficult situation that the economy is in, but the one thing we mustn’t do is to abandon public spending and deficit reduction plans because the solution to a debt crisis cannot be more debt.”

He added: “We must not put at risk the low interest rates that are absolutely essential to our recovery. That would be absolute folly and that is why no business organisation, no international economic organisation that suggests we follow that course.”

But Mr Miliband referred to the comments of backbencher Nadine Dorries earlier this week.

The leader of the opposition said: “As even his own backbenchers are saying, the complacent, arrogant posh boys just don’t get it.”