Fraser of Allander Institute : Economic Commentary [June 2011]

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Fraser of Allander Institute; (2011) Fraser of Allander Institute : Economic Commentary [June 2011]. University of Strathclyde, Glasgow.

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Abstract

The recovery continues to be weak in both Scotland and the UK. Our view of the performance of the economy has been distorted by the effects of the bad weather on production in December last year. However, once an allowance is made for weather effects it still looks as if GDP growth was stagnant over the last 6 months to the first quarter 2011. There are mixed messages on whether stagnation is continuing or whether the recovery has resumed again. It seems likely that the economy is still continuing to recover but at a fairly weak rate. Almost three years after the start of the recession the Scottish economy has only recovered about a quarter of the output lost, while the UK economy has recovered a third of lost output. These data support the evidence-based view that recovery from financially sourced recessions, particularly banking crises, are slow and painful. Exports are recovering slowly and business investment is fairly static with firms sitting on large piles of cash but unwilling to invest due to the uncertainty. So, the evidence seems to be moving in favour of those advocating a "Plan B" for the UK authorities to take some action to stimulate demand, it needs to be understood that while buttressing demand might be a necessary condition for a more rapid recovery it is not sufficient. We must be sure that our banking system is fit for purpose, able to freely lend to support the needs of the economy. It is not clear that we have presently reached that point. It is to be hoped that the final recommendations of the Independent Commission on Banking meet this requirement and that the proposals are adopted by the government.

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