Outlook and appraisal [September 1989]

The medium-term prospects for both the Scottish and British economies have clouded considerably during the last few days as it became clear that holders of sterling are beginning to lose confidence in the British economy. This loss of confidence reflects doubts about both the Chancellor's economic strategy and the ability of the economy to sustain an improvement in the current account of the balance of payments at the going sterling exchange rate. In the short-term the Scottish economy continues to bear up relatively well to the earlier interest rate rises. The growth rate is slowing down but less so than expected with sectors such as retailing and construction still remaining relatively buoyant up here compared with the UK as a whole. However, the low level of business confidence in manufacturing does not augur well for the prospects of avoiding a recession; prospects which have undoubtedly worsened following the increase in base rates to 15% and the blow to business confidence of falling share prices. Finally, further revisions to the employment data are less favourable to the government's view that employment in Scotland has benefited considerably from the upsurge in economic activity in 1987 and 1988.