The UK isn't a "safe haven", it's just stagnant

Lower borrowing costs are a reflection of economic weakness, not strength.

"The difficult decisions on the deficit have made the UK a safe haven in the recent economic storm," boasted George Osborne in his response to last week's anaemic GDP figures. Today, the Chancellor and his advisers are pointing to the fact that the cost of borrowing yesterday fell to its lowest level for over 50 years as proof of that claim. A spokesman for Osborne said:

"It's a vote of confidence, one of the key aspects of our plan has been a tight fiscal policy combined with a loose monetary policy, it's the right mix for economic growth, and the need to rebalance towards exports and away from consumption."

The yield on 10-year UK gilts has fallen to 2.76, which means far lower interest repayments on government debt, potentially saving the taxpayer billions of pounds. But is this really an unequivocally good news story, as Osborne suggests? After all, it's likely that the fall in rates has much much more to do with the fact that the Bank of England base rate is unlikely to rise until 2012, than it has with the supposed "strength" of the British economy.

Here's Paul Krugman's take:

Yields in the US have, of course, plunged rather than risen. And they've plunged for the same reason UK yields have plunged: a scarily weak economy suggests that it will be years before the central bank raises rates.

In a wonderful pay-off, he adds:

It's sad, actually: the wolf is at the door, and Osborne thinks it's the confidence fairy.

Over on his blog, Faisal Islam, Channel 4's excellent economics editor, makes the same point and highlights an important experiment by the National Institute of Economic and Social Research. The NIESR points out that one would expect a fall in rates, if the result of increased economic confidence, to correlate with a rise in the FTSE-100. But after crunching the numbers, the body found no such relationship. NIESR director Jonathan Portes concluded: "Low long-term interest rates appear to reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse."

Over to you, Mr Osborne.

George Eaton is political editor of the New Statesman.

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.