Aberdeen “worst hit” by hard Brexit, experts predict

BBC, today:

Aberdeen could be the city worst hit by falling economic output due to a “hard” Brexit, experts have predicted.

A new report from the Centre for Cities and the Centre for Economic Performance at the London School of Economics said all cities would see a fall in output due to increasing trade costs.

Aberdeen and Edinburgh were both ranked among the ten most affected cities.

However, the study said both cities are also among the best-placed to respond to any predicted economic turbulence.

The full report can be read here.

Most and least affected cities (% change in Gross Value Added)
Most affected cities (% change in Gross Value Added). Source: Centre for Economic Performance analysis, 2017. From report Brexit, trade and the economic impacts on UK cities (figure 3, page 5)

 

House of Lords urges differentiated solution for Scotland in Brexit

From “Chapter 5: Scotland” of the UK parliament’s House of Lords European Union Committee report on Brexit and devolution, published today:

We conclude, on the basis of the weight of evidence submitted to this inquiry, that the Scottish Government’s further proposal, for continued Scottish membership of the Single Market, through the European Economic Area, while the rest of the UK leaves the Single Market, is politically impracticable, legally highly complex and economically potentially disruptive to the functioning of the UK single market.

Nevertheless, we urge the Government to respect the particular circumstances in Scotland. While we acknowledge that the referendum was a UK-wide vote, giving a UK-wide result, the Government needs to recognise the fact that the vote to remain in Scotland, at 62%, was the largest and most decisive (either in favour of remaining or leaving) in any nation of the UK.

We therefore consider that, in the event that the UK Government does not secure a UK-wide agreement that adequately reflects Scotland’s specific needs, there is a strong political and economic case for making differentiated arrangements for Scotland.

The Scottish economy has particularly pressing needs, including its reliance on access to EU labour, which is acute in sectors such as health and social care, agriculture, food and drink, and hospitality. We also note Scotland’s demographic needs, and its reliance upon EU migration to enable its population (and in particular, that of working age) to grow. Scotland’s more sparsely populated regions are disproportionately reliant both on EU migration and EU funding. Many of our witnesses argued that the most pressing case, in view of Scotland’s economic and demographic circumstances, would be for a standalone approach to immigration policy. We address this issue in the next chapter.

Our witnesses have also suggested that differentiated arrangements could be reached in fields such as energy policy, justice and home affairs cooperation, participation in Europol, access to EU structural or research funds, participation in such programmes as Horizon 2020 or Erasmus, reciprocal healthcare provision, workers’ rights and working hours, and agriculture and fisheries.

Finally, we reiterate that maintenance of the integrity and efficient operation of the UK single market must be an over-arching objective for the whole United Kingdom. But that objective does not preclude differentiated arrangements for Scotland in some areas, and nor does it justify excluding the Scottish Government from the Brexit process. […]

Scottish economic growth outperforms expectations in the first quarter of 2017

Scottish GDP grew by 0.8% in the first quarter of 2017, averting recession following a 0.2% contraction in Q4 2016. Scotland’s 0.8% growth compares with 0.2% in the UK as a whole, 0.4% in the United States, and 0.6% in the euro area1.

Scottish GDP, quarter-on-quarter and annual percentage change

The other main points from the government’s latest GDP publication:

  • Scottish GDP per person grew by 0.7% during the first quarter of 2017.
  • In the first quarter of 2017 services in Scotland grew by 0.3% and production grew by 3.1%, while construction contracted by 0.7%.
  • Compared to the same period last year (i.e. 2017Q1 vs 2016Q4), the Scottish economy grew by 0.7%. Equivalent UK growth was 2.0%.

Contribution of industries to Scottish and UK GDP growth, 2017 Q1

The Fraser of Allander Institute (FAI) offered some key reasons for the significant growth in the production sector:

  • Firstly, the figures show a substantial rise of over 7% in metals manufacturing, driven in part by the re-opening of the Dalziel steel plant.
  • Secondly, as our latest Oil and Gas survey highlighted, there has been a growing return to confidence in the oil and gas supply chain. The data published today appears to indicate that this has actually now translated into a welcome degree of bounce-back in actual activity within the sector.
  • Thirdly, the figures report massive growth of over 12% in refined petroleum output which is largely output from Grangemouth. We’d urge caution with this series as it’s especially volatile […]
  • Finally, other sectors of manufacturing have also bounced back from a weak 2016. Food and drink for example, also grew strongly by historical standards.

The FAI on longer-term performance:

[…] [I]f Scotland can — over the remaining three quarters of 2017 — secure its average quarterly growth rate of 0.35% then this will bring in 4Q-on-4Q growth over 2017 of 1.2%. Identical to our June forecast.

July Fraser of Allander Institute nowcast suggests recession may have been averted

The latest Fraser of Allander Institute nowcast suggests that a recession in the Scottish economy, following a 0.2% contraction in GDP in Q4 of 2016, may have been averted (caveats—described in the FAI post—apply):

Looking forward, our model currently estimates growth in 2017 Q1 of between 0.2% and 0.3% and a similar rate for Q2.

The information that we have therefore — and comparing such data to historical trends — suggests that the economy has been growing during the first six months of 2017 (albeit below trend).

The latest estimates from the ONS indicate that the UK economy as a whole grew by 0.3% in Q1 of 2017.

Official figures for Scotland will be published on Wednesday.

Update

The FAI has also published its latest Royal Bank of Scotland Scottish Business Monitor results. In summary:

The results from the Royal Bank of Scotland Business Monitor suggest that the Scottish economy grew in the 3 month period to the end of June. This offers some signs that Scottish businesses are remaining relatively resilient in the face of challenging trading conditions.

More encouraging is the outlook, with a greater proportion of businesses expecting higher levels of activity in the second half of the year. Inflationary pressures remain strong however, and this will act as a drag on some sectors. Others, particularly tourism and exporters will continue to see opportunities from the low value of Sterling.

The JMC on EU negotiations: what a total farce

According to the UK government’s Secretary of State for Scotland David Mundell “[t]he Joint Ministerial Committee (EU Negotiations) was established to facilitate engagement between the UK Government and devolved Administrations” in “seeking the best deal for all parts of the UK” in EU negotiations.

John MacDonald, writing in issue one of Cable magazine:

The JMCs seems designed to leave representatives of the devolved nations under no illusions as to who is in charge. JMC meetings have only once been held outside of London. A single meeting was held in Wales. On that occasion, the Welsh government was not permitted to organise the event — it seems that only the UK government has the capacity to undertake that Herculean task.

JMC meetings are always chaired by a UK Minister and are always heavily populated by UK government officials, something which does much to colour the dynamic of meetings. Meetings are scheduled for just one hour. This is surely a ludicrously short time to allocate to a ‘monthly’ meeting on an issue as serious as how we leave the European Union.

Scottish representatives report typically having only around ten to fifteen minutes to articulate Edinburgh’s position during these meetings. They also express concerns over how receptive UK government officials are to discussing areas where there appears to be a divergence of view between Edinburgh and London. Indeed, Scotland’s Brexit Minister Mike Russell is on record as saying that such divergences are not necessarily acknowledged by London; key substantive issues which have been raised during the JMCs have been ‘simply taken away after discussion for UK officials to consider, and they have never re-emerged.’

Mike Russell responded on Twitter: “Correct — but we still need to find a way forward[.]”

(Source for David Mundell quote here.)