AS I SEE IT: TERRY MURDEN says the cause of Scotland’s sluggish growth may lie 400 miles away in Threadneedle Street

Data released last week included the surprising news that in the first quarter of the year Scotland’s economy grew at four times the rate of the UK average. Naturally, both the Holyrood and Westminster governments claimed credit for this growth spurt. Of course, when the Scottish economy falters they blame each other.

In any case, the longer term trend is less certain, though it can be said with some confidence that growth will be muted across the UK. In Scotland there will continue to be a lot of hand-wringing and demands for action, though finger pointing across the Holyrood chamber will achieve nothing amid a growing view that the real villain of the piece is the Bank of England.

Set aside the record of the UK and Holyrood Cabinets and just compare the Bank’s record with those of central banks in other countries.

Impressive job creation in the US indicates that the country will avoid recession and, even though inflationary pressures persist, it is below 5% and there is a likelihood now that the Federal Reserve will put its interest rate hikes on hold.

Inflation has also been tamed in Spain, now below 3%. In France and Germany the rate is hovering around the 6% mark. Italy is close to the target rate set by the European Central Bank. 

Yet in the UK it is stubbornly high. Even after the recent slowdown in prices, inflation is 8.7% and there is talk of three more interest rate rises before September.

Brexit is a factor in rising food prices, but it is not wholly to blame for the headline figure. Economic analysts say the Bank of England must take a share of the responsibility for persistently high inflation.

They say it was too eager to boost the money supply and that the Bank – affectionately known as the Old Lady of Threadneedle Street – stuck with low interest rates for far too long in the belief that inflation had been conquered. It complacently and recklessly failed to recognise that prices would soar once the Covid lockdown ended. Instead it predicted that inflation was a temporary phenomenon, when in fact it has shown to be difficult to manage.

In his pursuit of lower inflation, and in his blind faith in the Bank, the Chancellor Jeremy Hunt recently encouraged it to keep raising interest rates even if it plunges the UK into a recession. Mr Hunt clearly does not share a growing view that the medicine is potentially making the patient worse while the cost of living is more likely to fall as the price of energy and foodstuffs falls.

All this may be happening 400 miles from Holyrood, but it matters enormously. An absence of control over monetary policy is a huge gap in the debate over Scotland’s economic growth. Politicians of all shades, trade groups and others demanding “something must be done” is an excuse for failing to recognise that very little can be done without deploying the full took kit.

This is not an argument for independence. Rather, it means that the devolved Scottish government needs to work alongside Westminster and others pulling the economic levers rather than expect a parliament with limited abilities to do all the work.

It also means locating the pinch points. If the Bank of England is the problem, then fix it and stop looking to others to work miracles.

tmurden@dailybusinessgroup.co.uk

Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business

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