THE price of an ounce of gold is up on the year by around £200. When you have rampant inflation, investors seek to park their cash somewhere that holds – or increases – value. Like gold.
And inflation is increasing faster than even the Bank of England is telling us. The latest forecast from Goldman Sachs is that CPI inflation (always an underestimate) will hit an annualised 14.4% at the start of next year. Ouch!
There’s good news and bad news here, for Scotland. Another commodity that frightened investors are flocking to, in order to protect their assets, is … whisky. Last month, a cask of very rare whisky – an Ardbeg Islay if you are interested – was snapped up by an Asian investor for a cool £16 million.
That beats the previous record for a cask by a straight million pounds. We might also note that the £16m price tag is more than double what the French luxury brand LVMH paid to acquire the whole Ardbeg distillery back in 1997.
We Scots do like to flog off our economic crown jewels.
My point is that – bizarrely – rising prices are actually boosting large segments of the Scottish economy.
There is a sudden, veritable boom in the local whisky industry. The number of distilleries in the key producing areas is now at its highest since the Second World War.
Investment is being poured into further production capacity. As a result, output and global sales are surging. Scotch now accounts for fully 22% of all UK food and drink exports and 1.4% of all UK goods sales abroad.
Which might help explain why the British establishment is desperate to keep Scotland in the Union.
The significant fact about the Scottish economy is how diverse it is. And you need diversity for resilience.
Things always go wrong in the world economy. Since the millennium, we’ve seen the dot-com crash, the 2008 banking crisis followed by a global recession, then the Covid pandemic, Brexit and now rampant inflation.
It never rains but it pours.
To navigate such troubled waters, you need a very diverse economic structure that always has a bit that goes up when the rest is going down.
Most small economies depend on a very narrow range of economic activity. Scotland is different – though we have lost too much of our manufacturing thanks to Gordon Brown’s love affair with the City of London financial sector.
Scotland has a wide range of manufacturing, energy and services.
We are lucky that there is usually some part of the economy that benefits when everything else is in trouble.
With inflation exploding, we have oil, gas and (of course) whisky as economic lifeboats.
The price of North Sea Brent crude is down a bit since June but still a comfortable $98 a barrel, as I write.
The International Energy Agency, the West’s main forecasting guru, has just upped its oil demand growth prediction, based on the fact that consumers are switching from expensive gas to petroleum.
That should keep North Sea oil prices high. The Treasury of an independent Scotland would benefit accordingly.
Inflation, by the way, reduces the real value of public debt. Which means an indy Scotland would come into being with a falling real debt (whatever it is) and rising tax revenues. Good to know.
The Unionists will prattle on about the dangers of relying on a single commodity like oil. But the central advantage of Scottish economy is its actual diversity. Which is why the boom in the whisky industry is so important.
In 2021, despite the pandemic, whisky accounted for 75% of Scottish food and drink exports. This year we can expect to see whisky exports match their pre-pandemic level of just under £5bn.
Pause for techy point: if we were independent, that would represent £5bn of foreign currency coming into the country, which would eventually end up in the nation’s central bank reserves. Who says Scotland can’t sustain its own currency?
There are a few downsides, of course. As noted above, much of the Scottish whisky industry has been flogged off to foreigners. That means the profits from the industry flow abroad. However, independence allows us to construct a tax regime that will capture that income and keep it local.
Also, there is currently a wave of investment in distilleries that are locally owned. There’s even a new distillery going up in the Edinburgh docks that will produce 400,000 litres per annum of the water of life. It is due to open next year.
Again, Sukhinder Singh and his brother Rajbir, who launched the Whisky Exchange in 1999, are moving into production. They have bought back the Tormore distillery in Speyside from the French Pernod company.
Can the whisky boom last? What if there is a recession? Last week we got news the UK economy stalled in the second quarter. The Bank of England is predicting outright recession by the end of the year.
However, the whisky business tends to be long-term – a function of the need to let barrels mature.
During the big financial crisis and downturn of 2008-11, exports of whisky actually rose by circa 40%. Possibly, in extremis, folk drown their economic sorrows in Scotch. And whisky sales to China appear to be rising, despite international tensions.
It is also important to grasp that when the UK (and the rest of the world) enters recession at the end of the year, inflation is not going to go away. We are likely entering a phase of so-called stagflation when prices keep going up even though output is falling.
This is because there is no immediate prospect that energy demand has peaked, even with a slower global economy. And wage pressure is not going to mitigate until unemployment is very high.
As far as the whisky industry is concerned, the water of life will continue to hold and increase its value.
We will be told that independence should be put off till after the economic crisis, if then. However, the inflationary crisis – while bad
for living standards – only serves to show how resilient the Scottish economy is.
The real drawback is that we lack the political levers in Scotland to exploit the economic crisis for our own good.
An indy Scotland would reap the tax revenue benefits of rising commodity prices and could put this cash to work to protect less well-off Scots while investing for the next expansionary cycle. Which means the time for independence is now, not next decade.
Meanwhile, Scotland and the rest of the UK remain in economic stasis, while the Tory Punch-and-Judy show goes on and on interminably. If I hear another minister say “we must await the outcome of the leadership election” before taking fresh economic measures, I shall throw something at the telly.
This endless Tory election has nothing to do with the constitution or parliamentary process. The Tories alone have chosen the rules of this silly contest and are quite happy to let the country burn to a cinder while they contemplate their own political navels.
That alone should justify Scotland unilaterally holding an independence referendum.
It’s enough to drive you to drink. Sláinte!
