Scotland's economy shrinks on 'Brexit uncertainty'

Construction saw a sharp reduction in activity after a healthy first quarter

Scotland's economy shrank between April and June, according to the latest official figures.

Data released by the Scottish government shows output contracted by 0.3% over the period.

Construction saw a sharp reduction in activity - and Scotland's service sector barely grew.

GDP in Scotland was up by 0.7% over the year, while the UK economy grew by 1.2% over the same period.

In June it emerged total output from the Scottish economy grew at its fastest pace for two years in the first three months of 2019.

The latest report said: "The biggest falls have occurred in sectors which showed large increases in the previous quarter.

"The previous growth was likely to be due to stockpiles being built or work being brought forward ahead of the original planned exit date from the European Union."

'Deeply frustrating'

Finance Secretary Derek Mackay said: "Given the repeated warnings from business organisations and the contraction across the UK in the same quarter, it is unsurprising but deeply frustrating that we are now seeing the Brexit impact on the Scottish economy.

"The responsibility for this contraction lies entirely with the UK government."

The UK is preparing to leave the EU at the end of next month and Prime Minister Boris Johnson has pledged to complete Brexit by then "do or die".

Mr Mackay said: "There can now be no doubt that any form of Brexit will damage our economy and a no-deal Brexit would be disastrous for Scotland and could push the country into recession."

He added: "Scotland did not vote for Brexit but our economy is paying the price for it and we are likely to see continued volatility as businesses try to prepare for the looming October Brexit deadline and the increasing threat of a no-deal exit.

"We are already taking steps to protect jobs and our economy from Brexit but not every impact can be mitigated."

In the first three months of 2019 more than half of GDP growth came from two sectors - the manufacturing of spirits and wines, and pharmaceuticals.

This was linked to stockpiling ahead of an earlier EU exit deadline, with the statistics for April to June showing a "downturn in growth in these same industries, which may be the result of companies running down the stockpiled inventories".

The figures don't include output from offshore oil and gas extraction

Scottish Secretary Alister Jack said: "I am concerned the Scottish economy has shrunk over the last quarter and continues to lag behind UK-wide figures.

"Coming on the back of disappointing unemployment figures, more needs to be done to boost our economy and close the gap."

Mr Jack pledged to continue working with the Scottish government to boost the economy and create jobs.

He added: "To date, the UK government has committed £1.4bn in city and growth deals and we will seize all of the opportunities that will arise once we leave the EU.

"I urge the Scottish government to use the considerable powers at their disposal to improve the Scottish economy rather than holding it back with threats of a second independence referendum and the decision to make Scotland the most highly taxed part of the UK."

'Disheartening'

Andrew McRae, Federation of Small Businesses' (FSB) Scotland policy chair, said: "These figures are disheartening if unsurprising.

"Across the country, firms are either pouring resources into Brexit planning or postponing critical decisions until our political leaders get their act together. That means that they're not using every tool at their disposal to create jobs and drive growth."

He said the priority of small businesses is to avoid a no-deal, no-transition Brexit in just a few weeks.

The period covered three months after the original EU departure date at the end of March, following a period of stockpiling by manufacturing firms.

Labour MP and Best for Britain supporter Ian Murray said: "Constitutional upheaval is causing economic turmoil in Scotland and across the UK.

"If we crash out of the EU without a deal then the economic damage will be considerably more severe."

Scottish Liberal Democrat leader Willie Rennie also expressed concern.

He said: "The impact of Brexit is hitting investment, jobs and living standards, and the main phase hasn't even happened yet."