It was good to see the highly regarded Fraser of Allander Institute’s latest economic commentary, published last week, highlight some crucial realities as Scotland and the rest of the UK endure miserable times and face likely recession.

Prime Minister Rishi Sunak has pledged the UK Government will halve inflation this year (almost giving the impression inflation is something entirely in the Conservatives’ power). Mr Sunak recently made something of a song and dance about this promise, as if it would represent a great Tory success if achieved.

Mr Sunak has not particularly dwelled on the fact that even halving annual UK consumer prices index inflation, which was 10.5 per cent in December, would leave it way above the 2% target. And the crucial truth is that what he is crowing about is a continuing sharp rise in prices, albeit at a reduced pace.

So the following observation from the University of Strathclyde’s Fraser of Allander Institute seemed most apposite: “The expectations for the year ahead are for inflation to fall, perhaps getting down to 3% to 4% by the end of the year. Whilst some will be looking to take credit for this politically, the truth is that this was likely to happen anyway as we move past the first anniversary of the Russian invasion of Ukraine: given that the annual change in 2023 prices will now be compared to the much higher level in 2022.”

This is a key point. As everyone who follows inflation figures closely knows, the base effect is crucial. Mr Sunak has, however, rather skated over this, to put it mildly. Bringing down inflation is a key pledge for him, but he does not seem at pains to tell the electorate that this will happen naturally because of the base effect.

Fraser of Allander did not specify to whom it was referring when it talked about “some” looking to take credit “politically”. However, Mr Sunak does very much seem to have set himself up to do just that.

The think tank also emphasised in its Deloitte-sponsored commentary – and it is something that is always worth hammering home – that the anticipated easing of the inflation rate does not mean falling prices.

Ian McConnell: SNP Prestwick Airport backing pays off, with critics quieter

It declared: “Everyone has to remember that this does not mean that prices will start to come down anytime soon.”

Fraser of Allander also, quite rightly, highlighted a drag on the economy in Scotland and the UK as a whole, from spring onwards, from the UK Government’s sharp reduction in support for energy bills for households and businesses.

It said: “In April, we’ll have the rollback of government support for energy for households – and a hugely significant reduction in the support for businesses and charities. Despite this coming as we move into the spring, this signals a very tough time for households and businesses during Q2 and Q3 of 2023 in particular.”

Fraser of Allander noted that its new forecasts “reflect these tough conditions”, observing its projections for the Scottish economy had been downwardly revised from those it laid out last October.

In the goldfish bowl that is Scotland, there is often a lack of understanding or acknowledgement, wilful or not, of the simple fact that the fortunes of the economy will be in large part dictated by the strength or otherwise of that in the UK as a whole. And people must realise that, when it comes to things such as support on energy bills and Brexit, decisions taken at Westminster will have a major impact on the progress or otherwise of the Scottish economy.

So it is absolutely worth noting Fraser of Allander’s emphasis of the reduction of support for energy bills by the UK Government in the context of its downwardly revised projections for the Scottish economy.

The think tank is now projecting the Scottish economy will shrink by 1% in 2023, having forecast a 0.6% contraction in its previous forecasts last October. This new predicted fall of 1% is bang in line with the average projection for the UK as a whole from independent forecasters.

Fraser of Allander expects the Scottish economy to contract over the first, second and third quarters of this year.

It is now projecting growth in Scotland of just 0.6% next year, having forecast last October that the economy north of the Border would expand by 0.8% in 2024.

Support from the UK Government on energy prices means that a typical annual bill for a dual fuel household is currently being kept at around £2,500, although it is worth remembering that this is extremely high by historical standards and that millions of households are struggling as a result. The reduction in support from the start of April is likely to see such a typical bill jump to £3,000 per annum, piling on the misery.

Meanwhile, Fraser of Allander’s characterisation of the reduction in support on energy bills for businesses and charities as “hugely significant” seems entirely fair and measured.

Ian McConnell: Cheshire Cat resemblance from Rishi Sunak and Jeremy Hunt

The think tank also provided an astute analysis of the labour market. It highlighted a major positive – that unemployment is low by historical standards.

Fraser of Allander said: “One piece of good news has come from the labour market, with unemployment outperforming many expectations. Unemployment levels in both Scotland and the UK reached their lowest levels in the last 10 years, at around 3.3% for Scotland and 3.7% for the UK as a whole.”

However, it also flagged the problem of skills and labour shortages, and the issue of economic inactivity.

The think tank observed: “Large numbers have left the labour force, resulting in higher rates of economic inactivity and job vacancies. Economic inactivity in Scotland over the past 10 years has varied, hovering between 21% and 23% of the population. In the UK, however, average rates of economic inactivity have increased from a 10-year low of 20.4% in early 2020 to around 21.5% throughout 2022.

“Job vacancies reached a record high level in Q1 2022 and have remained far above pre-pandemic norms. In 2022, the number of jobs available exceeded the number of individuals looking for work in the United Kingdom for the first time in at least the last 20 years.”

The think tank’s consideration of the causes of this situation should provide food for thought for the UK Government, in the context of the Tories’ clampdown on immigration, though chance would probably be a fine thing in this regard.

Fraser of Allander said: “This phenomenon may be attributed to a decrease in EU workers, in spite of an overall increase in UK visa applications – large proportions of the workforce, who previously did not need a visa, likely left in the face of Brexit. The increase in inactivity rate since the start of the pandemic can also be attributed to older workers opting for early retirement.

“Our own analysis of Scottish business found that job matching was a crucial factor in the high vacancy rate – just over 80% of businesses reported that they were struggling to fill vacancies due to a lack of required skills or experience.”

Ian McConnell: Ministry of Silly Talk – Brexit reality after ‘huge strides’ claim

Clearly a lack of required skills and experience is absolutely not what anyone needs, especially with the spectre of recession looming.

As the economic situation deteriorates, the ruling Conservatives have a duty to think again about the damage done by their clampdown on the immigration of people from European Economic Area countries to the UK, albeit they likely will not. They must also bear responsibility for the consequences of their reduction in support for businesses and households on sky-high energy bills. And it would of course be pathetic if they were to claim credit for a fall in inflation.


The Herald: