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Latests nowcasts of the Scottish economy

With official estimates of GDP growth in Scotland in Q3 2019 due to be released later this month, we’ve updated our nowcasts for the Scottish economy for Q3 and Q4 2019.

These estimates put growth in Scotland:

For 2019 Q3 growth at 0.21% which, at an annual rate, is 0.83%
For 2019 Q4 growth is 0.25% which, at an annual rate, is 0.99%

These estimates represent similar estimates to those released last month – and a continuation of the sustained period of weak growth experienced through much of the past few years.

In the last set of official estimates of growth in Scotland, growth in the year to Q2 was 0.6%, included in this estimate was the contraction in GDP in Q2 itself.

The positive growth estimate for Q3 implies that Scotland will not enter recession in 2019.

Taking our estimates for Q3 and Q4 (above) together with the official estimates for 2019 Q1 and Q2, implies economic growth in Scotland of 0.7% between 2019 Q4 and 2018 Q4, or on a 4 quarter on 4 quarter basis, growth is estimated to be 0.8% in 2019.

Presentations from Scotland’s Budget Report 2019 Event

On Tuesday we published our fourth annual Scotland’s Budget Report. This was accompanied by an event at the National Museum of Scotland.

Alongside the FAI analysis, Paul Johnson, Director of the Institute for Fiscal Studies, Andy King from the Office for Budget Responsibility, Caroline Gardner, Scotland’s Auditor General, and Charlotte Barbour, director of taxation for ICAS, also spoke at the event. All discussed the current fiscal environment which is made all the more uncertain by the General Election and the flurry of announcements by all political parties on future spending commitments.

These presentations can be found below.

FAI Scotland’s Budget 2019 slides – Presented by Mairi Spowage and David Eiser, FAI
Taxation – Growing divergence? – Presented by Charlotte Barbour, ICAS
Fiscal risks in the UK – Presented by Andy King, OBR
Financial planning in uncertain times – Presented by Caroline Gardner, Scotland’s Auditor General
Economic and fiscal outlook – Presented by Paul Johnson, IFS

Key points from our Scotland’s Budget Report 2019

Today we published our 4th annual Scotland’s Budget Report.

The latest report shows that the Scottish Government’s resource budget in the past three years has evolved more healthily than was anticipated at the start of the parliamentary term in 2016, due to both UK government spending increases and Scottish government tax decisions.

Following announcements of further spending increases this year – and via the Barnett Formula – the outlook for Scotland’s resource block grant from Westminster has improved even further this year and next. Real terms increases of around 2% per annum are anticipated for the next two years, the first time period of consistent real terms increases since the start of the ‘austerity’ period.

But two issues, both relating to devolved income tax, will offset some of this increase:

1. The block grant in each of the next two years will be reduced to take account of the fact that outturn Scottish income tax revenues in 2017/18 and 2018/19 turned out to be lower than forecast. The Scottish Government will be required to repay £200m in 2020/21 and potentially as much as £600m in 2021/22.

2. On the basis of the latest official forecasts, Scottish income tax revenues are on track to disappoint relative to the rest of the UK.

As a result, despite the block grant from Westminster growing by 2.1% in 2020/21, the resources available to the Scottish Government may still only grow by less than 1% in real terms.

All this comes at a time of heightened political and economic uncertainty. Financial responsibility for £3.5bn of social security spending will transfer to the Scottish budget in April 2020, bringing new pressures and risks.

Commentary perspectives – Highlights from service re-design in healthcare

This blog includes highlights and key points from the article Service re-design in healthcare: the impact of innovative methods to compare costs and benefits (Anderson et.al, 2019).

The article was written by Robyn Millar, Gillian H. Anderson (corresponding author) Robert Van Der Meer and Alec Morton – all at the Department of Management Science, University of Strathclyde Business School

In the face of growing cost pressures, policy makers are looking for cost effective ways to meet the increasing healthcare needs of the population and improve the service to patients[1].

The collaborative study between the University of Strathclyde, The Scottish Government and NHS Scotland seeks to demonstrate the cost effectiveness of an innovative ‘virtual’ patient pathway – and, more generally, supported capacity building in service redesign and improvement across the Scottish health service.

To the authors knowledge, this is the first time that discrete event simulation has been used in an action research approach to develop bottom-up micro costing models to evaluate the kind of virtual clinic approach that is rapidly gaining acceptance in NHS Scotland and beyond[2].Continue reading

Today’s Fraser of Allander Economic Commentary in 10 bullet points

Today we published our latest Economic Commentary – for a quick summary of its findings please see this quick video. The full Commentary can be found here.

Uncertainty continues to act as a drag on Scotland’s economic performance

Scotland’s annual growth rate has slipped once again to just 0.7%. UK growth – whilst faster than in Scotland – is also well below trend at 1.2%

Consumer confidence and risk appetite amongst businesses remains weak.

Business investment in the UK has now been negative in 5 of the past 6 quarters.

Shortly before our June Commentary, figures for Scotland showed economic activity in Q1 of 2019 rising at its fastest rate in almost five years.

At that time, we cautioned that such figures were likely to be impacted by firms stockpiling in the run-up to the first Brexit deadline of 31st March.

Consistent with this, the latest figures now show that the economy contracted by 0.3% in Q2.

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