It may be too late to save the UK economy from recession

Today has seen a flood of bad economic news. The Autumn Statement may be too little, too late.

I am really hoping that one of these mornings I am going to wake up to some good economic news. But today was definitely not that day. The continuing flow of bad news on top of bad news is something we are all now becoming accustomed to.

I can only imagine how Vince and George feel every day when they open the economics and business pages of the newspapers. I did think it was time to try to be optimistic but I could find zero good news on the economics front; sorry. Neither Papendreou nor Berlusconi's resignations appear to have calmed the market's nerves.

Today started with an email from REC/KPMG's report on Jobs showing that the number of permanent placements had gone into negative territory. Recall that the latest labour market estimates from the ONS showed that employment had fallen over the last quarter by 178,000. So this is very bad news as it suggests that the labour market is headed downwards fast. Unemployment is set to rise again and there is every likelihood that youth unemployment will hit the million mark very soon.

No wonder there are thousands of youngsters on the streets of London, to this point protesting peacefully, about the government's lack of a credible higher education policy or any strategy to deal with rising youth unemployment.

But the bad news continued to flood in all morning. First there was the ONS publication of August's trade in goods deficit revised from £7.8bn to £8.6bn, but the deficit then widened further in September to £9.8bn - the biggest on record.

Second the CBI cut its growth forecast for 2011 to 0.9 per cent from 1.3, and for 2012 to 1.2 from 2.2 per cent, which is slightly more optimistic than NIESR's estimate yesterday of 0.8 and 0.9 per cent - recall that the OBR expects 2.6 per cent in 2011 and 2.8 per cent in 2012.

Third, the ICAEW/Grant Thornton Business Confidence Monitor showed business confidence has collapsed - companies are as gloomy about the outlook now as they were in the depths of the recession. The slump in sentiment pointed to a 0.2 per cent drop in GDP in Q42011.

And finally, we mustn't forget Italy - their 10 year bond yields were up 66bp at 7.37 per cent at noon today which is in bailout territory. Spanish yields were also up at 5.7 per cent. Greek yields are already over 25 per cent while 10 year Portuguese yields are over 11 per cent. This suggests the eurozone is heading into recession which hurts the UK economy which also now seems headed that way. Q42011 and Q12012 look likely to have negative GDP growth, which is consistent with a technical definition of a recession.

So the headwinds continue to gather. The Autumn Statement at the end of the month looks like it is going to be too little too late to prevent the UK economy going back into recession. I did warn them.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Winning Scottish independence will be even harder than before - but it may be the only choice

Independence campaigners will have to find answers on borders, currency and more. 

The Brexit mutiny has taken not just the UK economy and its relationship with Europe into uncharted waters. it has also imperilled the union between Scotland and England. From Sir John Major to the First Minister, both Unionists and Nationalists had warned of it. The outcome, though, has made this certain. The Leave vote in England and Wales contrasted with an overwhelming Remain vote north of the border.

That every region in Scotland voted to stay In was quite remarkable. Historically, fishing and industrial communities have blamed the European Union for their woes. That antagonism was probably reflected in lower turnout - an abstention rather than a rejection. 

The talk now is of a second referendum on independence. This is understandable given the current mood. Opinion polls in the Sunday Times and Sunday Post showed a Yes vote now at 52 per cent and 59 per cent respectively. Moreover, anecdotal evidence suggests even arch No vote campaigners, from JK Rowling to the Daily Record, are considering the option.

The First Minister was therefore correct to say that a second referendum is now “back on the table”. Her core supporters expects no less. However, as with the economy and Europe, the constitutional relationship between Scotland and England is now in uncharted seas. Potential support for independence may be higher, but the challenges are arguably bigger than before. The difficulties are practical, political and geographic.

Of course the Little Englanders likely to take the helm may choose a velvet divorce. However, given their desire for the return of the Glories of Britannia that’s improbable. They’re as likely to wish to see Caledonia depart, as cede Gibraltar to Spain, even though that territory voted even more overwhelmingly In.

Ticking the legal boxes

Practically, there’s the obstacle of obtaining a legal and binding referendum. The past vote was based on the Edinburgh Agreement and legislation in Westminster and Holyrood. The First Minister has indicated the democratic arguments of the rights of the Scots. However, that’s unlikely to hold much sway. A right-wing centralist Spanish government has been willing to face down demands for autonomy in Catalonia. Would the newly-emboldened Great Britain be any different?

There are no doubt ways in which democratic public support can be sought. The Scottish Government may win backing in Holyrood from the Greens. However, consent for such action would need to be obtained from the Presiding Officer and the Lord Advocate, both of whom have a key role in legislation. These office holders have changed since the first referendum, where they were both more sympathetic and the legal basis clearer. 

Getting the EU on side

The political hurdles are, also, greater this time than before. Previously the arguments were over how and when Scotland could join the EU, although all accepted ultimately she could remain or become a member. This time the demand is that Scotland should remain and the rest of the UK can depart. But will that be possible? The political earthquake that erupted south of the Border has set tectonic plates shifting, not just in the British isles but across the European continent. The fear that a Brexit would empower dark forces in the EU may come to pass. Will the EU that the UK is about to leave be there for an independent Scotland to join? We cannot know, whatever European Commission President Jean-Claude Juncker may be saying at the moment. The First Minister is right to start engaging with Europe directly. But events such as elections in France and the Netherlands are outwith her control. 

Moreover, currency was the Achilles heel in the last referendum, and hasn’t yet been addressed. George Osborne was adamant in his rejection of a currency union. The options this time round, whether a separate Scottish currency or joining the euro, have yet to be properly explored. A worsened financial situation in the 27 remaining EU members hampers the latter and the former remains politically problematic. 

The problem of borders

Geography is also an obstacle  that will be even harder to address now than before. Scotland can change its constitution, but it cannot alter its location on a shared island. In 2014, the independence argument was simply about changing the political union. Other unions, whether monarchy or social, would remain untouched. The island would remain seamless, without border posts. An independent Scotland, whether in or out of the EU, would almost certainly have to face these issues. That is a significant change from before, and the effect on public opinion unknown.

The risk that's worth it

Ultimately, the bar for a Yes vote may be higher, but the Scots may still be prepared to jump it. As with Ireland in 1920, facing any risk may be better than remaining in the British realm. Boris Johnson as Prime Minister would certainly encourage that. 

David Cameron's lack of sensitivity after the independence referendum fuelled the Scottish National Party surge. But perhaps this time, the new Government will be magnanimous towards Scotland and move to federalism. The Nordic Union offers an example to be explored. Left-wing commentators have called for a progressive alliance to remove the Tories and offer a multi-option referendum on Scotland’s constitution. But that is dependent on SNP and Labour being prepared to work together, and win the debate in England and Wales.

So, Indy Ref The Sequel is on the table. It won’t be the same as the first, and it will be more challenging. But, if there is no plausible alternative, Scots may consider it the only option.

Kenny MacAskill served as a Scottish National MSP between 2007 and 2016, and as Cabinet Secretary for Justice between 2007 and 2014.