Forecasting Eye 

 

On 20 August, the ONS released newly revised data on UK GDP up to 2016 showing the economy was £26 billion larger and growing around 0.2% faster than had previously been thought. The revision was driven by more accurate measures of the digital economy.

 

Our latest estimate was previously that the Flat White Economy accounted for 14.4% of UK GDP and the new revisions may increase this to around 15%.

 

What about Scotland? It is generally accepted that Scotland has the UK’s third most important digital economy hub after London and Manchester, though the position is closely contested with Bristol.

 

There are problems of measurement because different measures give different results. The Scottish Government’s estimates of turnover for the creative (including digital) sector show growth of 79.4% from 2010-17 and GVA growth of 81%; the apparent GDP data at basic prices shows growth of 18.6% from 2010-18. They can’t both be true. The employment data suggests 40% growth which supports the higher estimate, though one needs to be careful since this data only suggests a total of 15,000 employees or 0.6% of the Scottish total and that the creative sector is only 2.5% of GDP, both of which figures are implausibly low.

 

Our best guess is that Scotland’s digital and creative sector is 9.1% of Scottish GDP, which is respectable but only about two-thirds of the UK average. Obviously, it will keep growing but to take best advantage of the UK lead in this industry it will be important to plug into the two subsectors that are driving growth in the area.

 

The first is fintech. Clearly, London has a huge advantage since the digital economy is situated right on the edge of the City and there are obvious spillovers. But Edinburgh’s fund managers should also be a potent growth generator for Scottish fintech firms.

 

The second is the spillovers into retail applications, advertising and other forms of marketing from the UK’s high proportion of online retail (20% last month). Although relatively few of the large retail multiples are Scottish based, there is no reason why geography should be a limiting factor here.

 

It is widely agreed that the digital and creative sectors are bound to be critical for Scotland’s growth. What really drove the growth in London’s digital economy was a labour force fed with creative migrants especially after the economic collapse of Southern Europe. Can Scotland replicate that?

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652