Scotland’s onshore gross domestic product (GDP) fell by 0.2% in July, according to the latest estimates from the Scottish Government.
The decline comes after a fall of 0.8% in June and means GDP is just 0.1% higher than the pre-pandemic level in February 2020.
GDP growth during the second quarter of 2022 is estimated to have been flat at 0%.
The latest figures show output in the services sector, which accounts for about three-quarters of the economy, is estimated to have fallen by 0.3% in July.
Consumer-facing services grew by 0.3%, but this was offset by larger declines in other parts of the service economy.
The decreases were led by a 3.7% fall in professional, scientific and technical services output.
Output in production, construction and agriculture grew by 0.1% in July.
This includes growth of 2.5% in the water and waste management industry, rebounding after a sharp fall in June of 2.1%.
The monthly report noted that warm weather in July may have had an impact on the economy.
“The heat seems to have had an effect on the UK economy, with the weather being reported as a reason for increased turnover in ice cream manufacturing, amusement parks, golf clubs, maintenance and repair of vehicles, boat hire, marquee hire and outdoor pools, wholesale of water coolers, wholesale of fruit and the provision of courier services, where increased deliveries of summer clothing and fans were reported.“
UK-wide respondents also reported staff shortages as being an issue.
“Hotels and hospitality services were particularly badly affected, but comments were also received from manufacturers of health and beauty products, sheet metal fabricators, haulage companies, solicitors, and cleaning companies.”
Deputy First minister John Swinney said: “These figures show the extremely challenging economic conditions which are significantly hampering businesses’ ability to recover following the pandemic.
“The Scottish Government is doing everything within our powers to support people, business public services and the economy during this cost of living crisis, however, these efforts are threatened by the UK Government’s dangerous gamble on public finances and the health of our economy.
“Following the UK Government’s mini-budget, the pound fell to record lows on Monday, the cost of government borrowing has risen to its highest for over a decade and investor confidence is plummeting.
“The IMF’s warning over UK Government tax plans is stark and highlights the folly of the decision, while increasing the pressure on UK Ministers to reverse their proposals on tax.”
He continued: “I will outline our response in an emergency budget review next month but most economic levers remain with the UK Government.
“We are in regular dialogue with business organisations and leaders and support their calls for UK ministers to reduce VAT rates and respond to staff shortages.
“Scotland’s and the UK’s economy, businesses and households will suffer without urgent action.”
Meanwhile, First Minister Nicola Sturgeon said the UK is in the midst of a “rapidly deteriorating economic and financial crisis” and urged the UK Government to act.
The Bank of England was forced to step in on Wednesday, announcing plans to buy government bonds in a bid to avoid what it called a “material risk to UK financial stability”.
Speaking to the Conveners’ Group at the Scottish Parliament, she said it would be “normal people” who would bear the brunt of the country’s financial woes.
The intervention from the central bank comes after criticisms from across the political spectrum and an extraordinary statement from the International Monetary Fund (IMF) in relation to the Chancellor’s tax cutting plans.
Kwasi Kwarteng announced on Friday that the UK Government would scrap the top rate of tax and cut the bottom rate to 19p in the pound – which sent the pound to its lowest level against the dollar in history.
Sturgeon said: “I don’t think we should see the policies announced on Friday as inevitable now, I think as an immediate symbol of some kind of good sense being restored, the decision to abolish the top rate of tax should be reversed.”
The First Minister went on to say it would not be possible to “overstate the damage” of the so-called mini-budget to Scottish Government aims to tackle poverty and inequality.
She added: “The UK, as we speak right now, is in the midst of an unfolding and rapidly deteriorating economic and financial crisis and it’s going to be ordinary people that pay the price of that.”
The First Minister went on to warn that the UK may not have had a financial crisis such as this “possibly even including 2008” in living memory.
Both the Scottish National Party and Scottish Liberal Democrats have called for the Commons, which is currently on a conference recess, to be recalled.
SNP depute leader Keith Brown also said it was “astounding” the Prime Minister has not publicly addressed the crisis, adding: “It is time for her to come out of hiding and, at least, make the pretence of leading the country through this self-inflicted crisis.”
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