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Scottish Budget, UK Economy

Weekly update: UK GDP returns to growth, Bailey remains non-committal and Scotland has a new First Minister

The big economic news this morning was the UK economy is no longer technically in a recession, with real GDP having grown by 0.6% in the first quarter of 2024.

This is obviously good news. But dig into the data and it is a bit less impressive than the robust quarterly growth that the headline figure might suggest. Remember that GDP growth figures are presented as percentage changes relative to the previous quarter, which in this case was the second consecutive contraction in economic output.

When we look at the level of GDP, the story tallies much more with what we have been saying for the last few quarters, which is that the UK has been in a stop-start pattern of economic activity. GDP in quarter 1 of 2024 was 0.2% higher than in the same period in 2023. That’s hardly spectacular growth; in fact, it’s hardly growth at all.

Not only that, the population has been growing in the meantime, so on a per person basis – which is what really matters for assessing whether people are better off – these GDP figures continue to look pretty dismal. Output per person grew by 0.4% in the first quarter of the year, but it’s still 0.7% lower than a year prior and 1.2% below pre-pandemic levels. We’re now coming up to half a decade of no improvement in living standards, and that improvement being felt in a widespread manner still seems a way off.

Chart: UK real GDP and real GDP per capita since 2017

UK GDP has grown, but GDP per capita remains well below pre-pandemic levels

Source: ONS, FAI

The Bank of England leaves the door ajar for a June rate cut

Governor Andrew Bailey gave his best Alan Greenspan impression yesterday in the press conference after the Bank Rate decision and the publication of the May 2024 Monetary Policy Report, conducting it in Fedspeak – what Alan Blinder once called a “turgid dialect of English” employing ambiguous and wordy statements to keep observers guessing.

To be fair to Andrew Bailey, what he did say was that rate cuts might come sooner and be bigger than anticipated, but that it wasn’t a fait accompli, so there was ambiguity in French too. All those words are true, and he probably felt it necessary to stress his independence by saying that he would not be guided solely by Federal Reserve policy.

But we probably know no more than we did before the press conference. The direction of travel of central banks in response to global shocks is generally similar, but there is little evidence that the actual timing of different central bank’s actions is or should be guided by the Federal Reserve, even if it is the anchor of the system. So it was likely never sensible to put too much weight on the Fed being strictly speaking the first mover.

And therefore we have to wait for June and to see what economic data comes out before we can gauge what the Bank of England will do. Which is probably exactly what Governor Bailey would like us to do.

Your face looks familiar… And so does your job title (sort of)

John Swinney has now been sworn in as First Minister of Scotland, with Kate Forbes as Deputy First Minister and Cabinet Secretary for the Economy and Gaelic.

We await news on what the new government will mean in terms of policy direction, and will cover these in due course. We will have to wait a bit longer than expected though, as the Medium-Term Financial Strategy and accompanying publications – including the draft Tax Strategy and the Infrastructure Investment Plan annual report and pipeline reset – have been delayed. The Scottish Fiscal Commission has also been told to pause its forecast while the new government sets its priorities internally.

The SFC and other scrutinising bodies, such as the Finance and Public Administration Committee, will however be spared the need to get acquainted with a new minister, as Shona Robison will remain Cabinet Secretary for Finance and Local Government – which were already in her portfolio. In fact, save for the top duo, there were no changes to cabinet at all.

The appointment of new ministerial and cabinet secretary posts may have been fairly uneventful, but there was a noticeable change in the titles given to those responsible for the economy and employment portfolios with the terms “wellbeing” and “fair work” both disappearing. Whether or not this signals a change in direction in terms of economic strategy is yet to be seen, but given that eradicating child poverty was one of the first issues that John Swinney talked about after taking office, it seems unlikely that the social justice will not continue to have a central place in economic policy.

Whilst this rebranding will have delighted some and worried others, a rethink on these things is not necessarily a bad thing. At the FAI, we’ve long been a bit perplexed about what a “wellbeing economy” meant in terms of decision making, preferring its predecessor, inclusive growth, which gave credence to economic growth and reducing inequality being necessary to achieve either and both. The term ‘wellbeing economy’ is much harder to pin down and meant different things for different advocates, which is not ideal.

We will have to wait and see what happens next. And just because there is no longer a ‘wellbeing’ economy minister, it may well remain the term used in government policy documents. The much more important thing is what policies result and what impact they have.

Authors

João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.

Emma Congreve is a Senior 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.