Fraser of Allander Institute Blog

Should the Scottish Government borrow to fund higher levels of capital investment?

David Eiser, FAI

The Scottish Government’s capital borrowing powers

Under its fiscal framework, the Scottish Government can borrow up to £450 million annually to fund capital investment, as long as it remains within a total borrowing envelope of £3bn.

The catch with borrowing of course is that you have to pay back what you have borrowed, with interest. If it chose to use its borrowing powers, the government would be able to borrow via the UK Government through the National Loans Fund (NLF). (It could also borrow by issuing its own bonds, but it is unlikely to face lower interest rates through this channel than through the NLF).

At the moment, the government could borrow for a 25-year period at an interest rate of about 1.9%. On a £450m loan, this would imply total repayments of around £570m, or around £23m per annum. Alternatively, it could borrow for a 10-year term at an interest rate of around 1.5%. Total repayments would be lower (£490m) but the annual repayment would be higher, at around £49m.Continue reading

May’s nowcast update!

We’ve once again run our nowcasting model on the latest data on Scottish economy to provide estimates of current and recent growth in the economy.

Our model produces the following estimates of growth in the Scottish economy:

• Our nowcast for GVA growth in 2018 Q1 is 0.28% which, at an annual rate, is 1.13%

• Our nowcast for GVA growth in 2018 Q2 is 0.32% which, at an annual rate, is 1.29%

These represent our first estimate for growth in 2018 Q2, and an update on our previous estimate for 2018 Q1 – which last month was estimated to be 0.36% (or annualised at 1.43%).

Gross national income statistics for Scotland: a net outflow of Scottish income?

Last week, the Scottish Government published experimental statistics on Scottish Gross National Income (GNI).

This is the latest in the round of developments to widen the coverage of economic statistics in Scotland. The commitment of the Scottish Government to improving the databank of Scottish economic statistics is to be commended. In recent years, this has seen the development of national accounts, a significant improvement in the coverage of GERS, a bringing forward of the publication of GDP and new statistics on Scottish productivity.

Engage week event – the Scottish economy

Last Friday we held our annual ‘Engage week’ event.

‘Engage @ Strathclyde‘ is the University’s flagship programme of external engagement events where delegates have the opportunity to find out more about the world leading research taking place at the University, and for industry, the public and third sector to explore how they can work with us to collaborate in a variety of ways.

At our event, the FAI Director Graeme Roy provided a short review of the current state of the Scottish economy (slides provided below), followed by a focussed series of discussions with panellists and the audience on key issues in the economy.

We were joined by panellists, Jane-Frances Kelly (Director of the David Hume Institute), Graeme Sands (Clydesdale Bank), Julia Darby (Head of Department of Economics, University of Strathclyde) .

The event also showcased some of the FAI’s research activities and plans for the year – with poster sessions covering all the Institute’s work programmes.

Below are Graeme Roy’s slides. These can be downloaded here.

Retail sales in Scotland – resilient to the beast from the east?

Last week, we had the first set of official data on the potential impact of the bad weather on the UK economy when estimates of GDP for Q1 2018 were published. They showed that UK growth slowed to just 0.1% over the 3-month period.

The bad weather in early March (the ‘beast from the east’) has been cited as having been behind much of this weakness – although it’s unlikely to have contributed to all of the slowdown.

Of interest here in Scotland, is that today we have the first set of official estimates on economic activity – provided by retail sales – in Scotland for the same period.

They show that sales grew by 0.5% in real terms over the quarter, in sharp contrast to activity in GB as a whole where sales fell 0.5%.

These data offer some tentative signs of better performance in the Scottish economy than we have seen in recent quarters.