February Nowcast Update

This week we received new data on UK GDP growth in Q4, which came in at a disappointing 0.0%.

Some of this was clearly due to Brexit uncertainty, but there are clearly other factors on the go this time around. For example, rather than rising significantly as per the previous pre-Brexit deadline in March 2019, manufacturing activity fell tipping that sector into recession. Continuing a consistent trend in recent years, business investment was weak once again, falling by 1% in the final quarter of the year.

Weaker global growth and a relatively fragile period for consumer confidence appear to be just as important explanations as any Brexit-induced uncertainty.

On the plus side, we also received updated estimates of UK GDP growth for 2019 Q3 which has now been revised upward slightly to 0.5%.

In terms of the Scottish outlook, the FAI early indicators of the health of the Scottish economy, like the Addleshaw Goddard Scottish Business Monitor, suggest that there was a slight uptick in confidence among Scottish businesses towards the end of last year. Nevertheless, the FAI Business Activity Index, a measure of Scottish business activity, remains unchanged since the last quarter (5%), just below the three-year average (8%).

Given the sluggishness of UK growth, and the relative weakness of Scottish growth relative to UK growth over the past while, all signs point to another weak quarter of growth in Scotland in Q4.

We’ll have to wait until 18 March for official estimates of Scottish Growth for 2019 Q4, but in the interim our latest nowcasts of the Scottish economy suggest that growth in the Scottish economy in:

  • 2019 Q4 is 0.26% which, at an annual rate, is 1.03%
  • 2020 Q1 is 0.27% which, at an annual rate, is 1.08%

It should be noted that these estimates are based upon past trends – and deviations from these trends – and do not capture one-off or ‘political’ events such as Brexit. With this in mind, particularly in light of yesterday’s UK GDP, on balance we think whilst the Scottish economy did continue to grow in the final three months of 2019, this growth was very weak (and will be close to zero).

We’ll provide a new update, based on updated data, at the beginning of March ahead of the official estimates later in that month.