Seven years after the ‘great recession’ and there is no indication of a return to the ‘old normal'

Nothing is close to certain in these uncertain times, but it now looks more than likely that the US Federal Reserve will move key interest rates upwards at its December meeting – after 9 years of rate stability at a record low level. But that should not be taken to mean that the same trend is likely soon in the UK, let alone the Euro area.

Many analysts expected a Fed move in September; but perhaps at time Fed Chair Janet Yellen (a natural dove) was swayed by concerns about market conditions in China. Since then US data have continued to strengthen and the smoke signal emerging after the late October Fed Open Market Committee meeting (their decision-making body) was that a rise should be expected next time around. This is not surprising given strongish GDP data, a more than decent reading on the important Purchasing Managers’ Index and, in October, the lowest number of new registrants as unemployed for well over 40 years. Even inflation is in positive territory so maybe the time is right for the Fed to move; if not in December then in early 2016.

In the Eurozone the opposite expectation applies. Monetary loosening has been signalled, not via any cut in interest rates (there is effectively nowhere to go!) but via an expansion of the European Central Bank’s quantitative easing (QE) programme. Across the zone growth remains weak, with very limited inflation and –crucially – unacceptably high levels of unemployment. Some action is seen to be needed and another strong dose of QE appears to be what ECB President Draghi has ordered, for delivery in December.

That suggests we could see the first sign of monetary easing next month in the US alongside the obverse - monetary tightening - in the developed world’s second largest economy. These two economies may be facing similar pressures as a result of the marked slowdown in China and other emerging economies, but they are certainly not working in tandem.

What then of the UK? I continue to be firmly of the view that any thoughts of monetary tightening here should be shelved for many moons. In essence that is because growth is weakening and uncertain, while inflation is both well below the Monetary Policy Committee’s target and too low for comfort for those worrying about deflation, with no sign of any significant pick up soon.

This combination of weakening growth and low inflation, with further fiscal tightening in train including real net income cuts for many consumers, should rule out any thoughts of any increase in UK interest rates. I accept that this extended period of ultra-low rates is seen by many as unhealthy for financial markets, but so be it. These remain abnormal times, so require abnormal policies.

That should be particularly welcome in Scotland where the latest economic data are on the ugly side. Scottish GDP growth in the second quarter of 2015 was a meagre 0.1%, well below the UK equivalent. (There was disappointment that UK GDP growth fell back to 0.5% in Q3; that growth rate would be welcomed like the prodigal child in Scotland.) The fact that there was any increase at all in Scottish output in Q2 looks to be down to the construction sector; our thanks to you, new Forth crossing.

Manufacturing output fell back and the service sector stood still. Even more worrying was the fact that the Purchasing Managers Index for Scotland fell into negative territory in September – a signal of a decline in output. The October index is expected soon and will be closely watched but meantime the Scottish Chambers Survey published last week flashed what the authors called an ‘amber warning light’ for governments north and south of the border. Low growth in Q2 looks set to be followed by low growth again in Q3.

These signs of adverse trends in Scotland as compared to the UK as a whole are reinforced by the employment data. In the quarter to August 2015 employment fell by 6,000 while unemployment rose by 18,000. All the evidence points to a worrying relative trend in Scotland, which must be at least in part attributed to the impact of low oil and gas prices and the marked decline in North Sea related activities. Meantime the price for Brent crude remains stuck below $50 per barrel, with no hint of any sharp upward movement to be anticipated.

In sum, the Scottish economic outlook shows some sign for concern. The focus must remain on investment, innovation, best use of skills and ambitious management. The only way forward is via being competitive.

Jeremy Peat is visiting professor at the University of Strathclyde's International Public Policy Institute