Scottish Economy

Weekly update – things could be worse?

This week we are upholding our reputation as economists and bringing plenty of doom and gloom, even with today’s ‘not as bad as it could be’ news on UK GDP.

Technical recession in 2022 avoided – for now

The big headline today from the ONS release of UK GDP data was that despite a contraction in growth in December of 0.5%, growth was flat in the October-December quarter overall. As this follows a contraction in Q3 2022, it means that the UK has narrowly missed out on being in a technical recession in the second half of 2022.

However, what really struck us was the drivers of the contraction in December, which was driven most significantly by services that are dominated by the public sector. Healthcare on its own fell by 4.2% on the month, which “included fewer GP appointments and operations, partly because of the impact of the strikes”.

Further falls in NHS test and trace and vaccine activity also contributed. Education was the second largest contributor to the fall, falling 2.6% in December, the sector’s fourth consecutive monthly contraction. The ONS say that there was a significant drop in school attendance levels, especially in the run-up to Christmas. Between them, these two sectors are responsible for over half of the 0.8% fall in services output for the month.

Two things to note on this for those of you who enjoy stats chat. One, for their short-term output measures such as monthly GDP, ONS tend, at the moment, to use England-only data for Education and Health, so they may tell us little about impacts in the devolved nations. Secondly, the UK may end up having been in recession after all – these initial monthly estimates may well be revised, so let’s see if this current economic reality is changed as more information is incorporated into the figures.

Unfortunately, 2023 doesn’t look great either

Earlier this week we released our (slightly later than usual) quarterly economic commentary. In our assessment of the latest key data on the Scottish and UK economies, we are forecasting a contraction of 1% in 2023, before annual growth in GDP returns in 2024.

This is a slight downward revision from our last forecasts in October, reflecting in part the impact of scaling back of energy bill support from April 2023. It is the continued impact of high inflation that dominates the forecast, and the expected contraction in spend that this implies. Of course, forecasts are predictions based on current data and expectations – things may change significantly over the course of 2023, and there are risks to the upside as well as the downside.

We held our first in person event in three years(!) earlier this week and were joined by Greg Thwaites, Research Director at the Resolution Foundation and John Ireland, Chief Executive of the Scottish Fiscal Commission to talk about our commentary and the outlook for the Scottish Budget. It was a great event, and a recording is available for those who weren’t able to watch live – view it here (we’ll try and remember not to all wear black next time!)

Government plans under scrutiny in parliament

The Scottish Budget Bill cleared stage 2 but not before an interesting scrutiny session on Tuesday when the interim Finance Secretary John Swinney appeared in front of the Finance and Public Administration Committee. Issues that came up included Council Tax, behavioural change related to income tax changes, and the financial support for the National Care Service where the Scottish Government appears to have rolled back the investment for this financial year from estimates given in the Financial Memorandum that accompanied the first stage of the National Care Service Bill (see here for our analysis on the Financial Memorandum from August this year).

Scrutiny of the National Care Service legislation also featured in a report from the Delegated Powers and Law Reform Committee on the 3rd of February. The Committee had concerns about the insufficient detail in the primary legislation, with too much of a reliance on secondary legislation once the Scottish Government’s ‘co-design’ process has been completed, therefore reducing the scope for thorough parliamentary scrutiny on the details of the reforms. Among other concerns, the Committee felt that this was ‘risks setting a dangerous precedent’. Two SNP MSPs dissented, and their minority statement welcomed the ‘new approach’ of co-design and where content. There must have been some interesting discussions behind the scenes in drafting that report…

The National Care Service Bill is still at Stage One – we have a long way to go on this one still.

Recess next week

The parliament is in recess next week with many schools off for half-term. Do not fear however, we will be back next week with more updates and analysis – and we’ll try and find something to be cheerful about!


Emma Congreve is a Principal Knowledge Exchange Fellow and Deputy Director at the Fraser of Allander Institute. Emma's work at the Institute is focussed on policy analysis, covering a wide range of areas of social and economic policy.  Emma is an experienced economist and has previously held roles as a senior economist at the Joseph Rowntree Foundation and as an economic adviser within the Scottish Government.

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.