The big economic news this week was undoubtedly the 12th consecutive rate rise from the Bank of England. The Bank have done this to continue to bear down on stubbornly high inflation, which is still in double figures at 10.1% (latest data for March).
The Bank’s outlook for the UK economy has improved considerably since their last set of forecasts were published in February. Broadly in line with the Office for Budget Responsibility, they now think that the UK economy will overall be flat in the first half of 2023 before returning to growth in the second half of the year. The Bank are forecasting 0.7% growth in 2023, followed by 0.8% growth in 2024. It is worth highlighting though that this figure for 2024 is pretty anaemic, and below the current forecast from the OBR for the same period.
The Bank’s expectations are still for inflation to fall sharply from April, in part as the high price levels from a year ago come into the comparison. The next data are out on 24th May: let’s see if the economists are correct this time, as to be fair we’ve all been expecting the rate to fall below 10% for some months now.
UK Economy grows in Q1
Today, we got data from the ONS that confirms that the UK economy grew during the first quarter of the year, albeit by only 0.1%. That is balanced out with the news from the monthly data that there was a contraction during March, with wholesale and retail contributing the most to this contraction. This could suggest that the wider economic conditions are starting to bite on consumers, so it will be interesting to see how this is reflected in next month’s data.
Reports about talks about talks
Officials from the Scottish Government and HMRC were at the Public Audit Committee this week to give evidence about the administration of Scottish Income Tax. This session, as one may expect from the Public Audit Committee, was on the technical details of the collection of the tax (which, while partially devolved, is collected by HMRC rather than Revenue Scotland) and also the audit arrangements for the tax collection.
There were some interesting nuggets in there from a tax policy perspective. There was the view of the Scottish Government on the reasons for Scottish Income tax lagging behind the rest of the UK: mainly laid at the feet of the decline in oil and gas jobs: but there didn’t seem to be much clarity on whether we would ever be able to analyse whether this was actually the case.
We also heard that the fiscal framework review has moved “back into an active space”. For those who are after a recap of what on earth this is all about, see our blog in late 2021.
Slightly depressingly, as the PAC Convener Richard Leonard characterised it, this review is currently in the status of “talks about talks”. It is still very unclear when this may be concluded (or even start). Hopefully, we’ll see some news about this from both Governments soon.
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.