Scotland on brink of recession as the economy shrinks to underperform the rest of the UK

Jasper Jolly
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2015 General Election - Economy
Scotland's output shrank at the end of 2016 (Source: Getty)

The Scottish economy shrank at the end of 2016 despite growth in the rest of the UK economy accelerating.

Scotland’s output contracted by 0.2 per cent in the last three months of 2016, according to Scotland’s Chief Statistician.

In contrast the entire UK economy (including Scotland) grew by 0.7 per cent during the same period.

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Manufacturing slumped to a 0.9 per cent contraction during the period, while there was no growth in the services sector.

The disparity between UK and Scottish year-on-year growth was even greater, with 1.9 per cent growth in the UK as a whole, while there was no increase in Scotland’s output.

Scotland’s economy has slowed shown sharply since peaking in the first quarter of 2015, when annual growth reached highs above three per cent.

Since then growth has slowed to a stop, leaving the Scottish economy on the brink of a recession, usually defined as two quarters of contraction.

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Some of the contraction was almost certainly caused by the fall in oil prices. The price of Brent crude oil, the benchmark for North Sea drilling, fell from highs of more than $110 per barrel in mid-2014 to only $55 per barrel this week, harming the sectors reliant on the oil industry.

The oil sector, which was a central bone of contention in the independence debate, is not included in the Scottish figures, but is included in the UK-wide reading.

However, the oil sector is unlikely to make up a significant difference, as output in the mining sector (including oil production) decreased by 6.9 per cent in the fourth quarter across the entire UK.

The decline in the oil economy is partly to blame but the contraction has been felt “across the board”, according to Scott Corfe, director at the Centre for Economics and Business Research (CEBR).

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Scotland’s underperformance relative to England has been caused by its lack of a growth driver such as London, Corfe said.

“A lot of the really high-growth industries seem to be disproportionately based in England,” Corfe said.

Hugh Aitken, Scotland director at the Confederation of British Industries (CBI), said: “Scotland’s economy finished last year on a low note. While the production and construction sectors have been particularly weak, growth in the services sector also ground to a halt – a real worry given its importance to the Scottish economy.”

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