Scotland's economy is on the brink of a recession

Two consecutive quarters of 'negative growth' is the technical definition of a recession.

SNP Finance Secretary Derek Mackay blamed Brexit.

The UK economy shrank by 0.2% over the same period.

Over the year to June, Scottish GDP grew by just 0.7% compared to 1.2% for the UK.

A key factor in the latest figures was a see-sawing of business activity on either side of the original Brexit deadline of March 29.

In the quarter ahead of the date, many firms stockpiled goods in case of no-deal, with the increased economic activity lifting GDP.

After the deadline was extended, that process went into reverse as firms ran down their stocks and economic activity sagged.

A fallback in food and draink and pharmaceutical industries, which helped drive the 0.6% rise in Scottish GDP in the first quarter, accounted for the whole 0.3% fall in the second. 

Mr Mackay said: “Given the repeated warnings from business organisations and the contraction across the UK in the same quarter, it is unsurprising but deeply frustrating that we are now seeing the Brexit impact on the Scottish economy.

"The responsibility for this contraction lies entirely with the UK Government.

“We are already taking steps to protect jobs and our economy from Brexit but not every impact can be mitigated. We will continue to stand firm against efforts to take us out of the EU against our will.”

On a visit to the Codebase technolgy incubator in Edinburgh, Mr Mackay added: “It is worrying news, but I do believe it is the consequence of the Brexit threat.”

Asked if he was concerned about the prospect of a recession, he said: “Yes, I am.

"All the economic consensus is, and this is a further warning shot, that this contraction for Quarter 2 is a concern and the economic consensus is that if there’s any form of Brexit there will be a negative economic impact.

"But if there is a no-deal Brexit, then I feel it’s now a certainty there will be a recession.”

Asked about independence causing even more uncertainty, he said: “We’ve been able to show how independence can help us grow our economy, have a more prosperous and fairer society. We’ve shown the difference independence would make.

“It would give us the abilities that small independent countries around the world have to react to events and grow their economies, and be more agile and resilient.”

Scottish Secretary Alister Jack said:  ““I am concerned the Scottish economy has shrunk over the last quarter and continues to lag behind UK-wide figures. 

“Coming on the back of disappointing unemployment figures, more needs to be done to boost our economy and close the gap.  

“We will continue to work with the Scottish Government to boost the Scottish economy and create jobs. To date, the UK Government has committed £1.4bn in city and growth deals and we will seize all of the opportunities that will arise once we leave the EU.  

“I urge the Scottish Government to use the considerable powers at their disposal to improve the Scottish economy rather than holding it back with threats of a second independence referendum and the decision to make Scotland the most highly taxed part of the UK.”  

Professor Graeme Roy from the Fraser of Allander Institute said: “The data today confirm that, like the UK as a whole, the Scottish economy contracted in the second quarter of 2019.

“Economic activity has proven particularly volatile this year as Brexit uncertainty has affected the pattern of business activity.

“In the first three months of the year we saw activity boosted by firms stockpiling supplies in the event that the UK exited the EU at the end of March. 

“When this did not come to pass, and the next deadline was pushed to October 2019, we saw firms run down these stockpiles leading to lower levels of activity.

 “This was most clearly evident in activity in the production sectors of the economy. We saw this in the UK wide data, and we see this in the data released this morning for Scotland. 

“In manufacturing for example, output grew by +2.3% in Q1, only to be followed by a contraction of -2.2% in Q2.

“The early evidence suggests that activity in the UK economy has picked up in recent months. Whilst fragile, this suggests that a technical recession – i.e. two consecutive quarters of falling output – appears unlikely. 

“Of course, all this could change if the Brexit process was to further unravel.

 “As always, we urge people to focus on longer term growth rather than individual quarter to quarter fluctuations. Over the last year growth was +0.7%, far from Scotland’s long-term average growth rate, and lagging the UK over the same period where growth was +1.2%.”

Scottish LibDem leader Willie Rennie said: “The impact of Brexit is hitting investment, jobs and living standards, and the main phase hasn’t even happened yet. That is why the Lib Dems are right to offer people a way to make it stop, with our revoke policy.”

Economist John McLaren of Scottish Trends added: “Like the UK, Scotland’s economy has performed poorly in the second quarter of 2019. This was largely down to a reversal of the, stockpiling related,  fast growth seen in Manufacturing in Q1.

“Looking at Scotland’s performance over a longer timeframe and across sectors suggests that the Manufacturing sector has performed relatively well over the past decade. However, Distribution services and Business services have shown a worrying underperformance over the past 5 to 6 years. 

“In addition, the Health and Social Work sector, despite significant boosts to the NHS budget, has seen falling output (in per capita terms) since 2012, in contrast to most other parts of the UK. Such a contraction highlights concerns over falling Scottish productivity in this sector.”

Scottish Labour MP Ian Murray, on behalf of the Best for Britain campaign, said: “Constitutional upheaval is causing economic turmoil in Scotland and across the UK. 

"If we crash out of the EU without a deal then the economic damage will be considerably more severe. 

"These figures relate to people's livelihoods - jobs and incomes. That's what Boris Johnson is gambling with.

"The threat to the Union is also causing unnecessary economic uncertainty. 

"We need a final say on Brexit with the chance to grow the Scottish and British economies and the opportunity for the UK to remain in the EU." 

Andrew McRae, of the Federation of Small Businesses, said the figures were “disheartening if unsurprising”. 

He said: “Across the country, firms are either pouring resources into Brexit planning or postponing critical decisions until our political leaders get their act together. That means that they’re not using every tool at their disposal to create jobs and drive growth.

 “The small business priority is to avoid a no-deal, no-transition Brexit in just a few short weeks. Where possible, every business leader needs to take action to mitigate the risk of this chaotic outcome. 

“But there’s no way such a scenario wouldn’t squeeze many operators. It must be avoided.

 “North of the border, Holyrood decision-makers need to take note of the storm clouds on the horizon. The upcoming Scottish Government budget must focus on providing much needed stability and at every turn Ministers need to think twice about putting additional burdens on local firms.”