The Fraser of Allander Institute said that while a hard Brexit would act as a significant drag on Scotland’s economy, and that of the UK as a whole, it was the risk of a ‘no-deal’ scenario that was of greatest immediate concern.
A smooth Brexit transition was essential to avoid derailing progress in the Scottish economy, which has shown signs of outpacing that of the rest of the UK over the last two quarters. GDP figures released last week indicating Q2 growth of 0.5%.
Although prolonging Brexit talks would be unpalatable for some, the institute said “sleepwalking” into a no-deal arrangement would bring hardship for businesses and employees.
“Whether you agree or disagree with the decision to leave the EU – or the final agreement the UK should negotiate with the EU – the need for an orderly transition is vital,” said institute director Professor Graeme Roy.
“To enable firms to prepare and develop contingency plans, it is vital that a deal is reached.
“Should this require more time to negotiate a workable solution then so be it.”
The institute pointed to evidence of a short-term uptick in the rate of growth across the Scottish economy, with a strong performance in manufacturing – boosted by the success of the food and drink sector – and tourism-related activity.
Oil and gas had also recovered steadily, it said, with the outlook for the sector, and its supply chain, looking more positive now than it had done in almost three years.
On balance, it believed the Scottish economy was showing greater signs of resilience, and predicted growth of 1.3% this year, rising to 1.4% in 2019 and 2020.
However, it said the lack of clarity on the UK’s future relationship with its largest external market continued to cast a shadow over the outlook, and warned that these forecasts would change significantly in the absence of a broad-based agreement between the UK and the EU.
Growth was also likely to remain below trend due to structural challenges, such as weak productivity growth, which remained a feature of the Scottish economy, it said.
The report was welcomed by the Scottish Government’s constitutional relations secretary Michael Russell, who said an extension to the Article 50 period should be on the table.
“This report, like the UK government’s own guidance, could not be clearer about the economic harm and chaos which could ensue from not reaching a deal…and further makes the case for staying in the EU or delaying the decision to leave, to allow time to secure the least damaging outcome," he said.
But the UK government said its white paper set out a vision of a “principled and pragmatic” plan that would ensure the whole of the UK, including Scotland, was well-placed to capitalise on the opportunities of Brexit.
“We firmly believe it is in the interests of both the EU and the UK to strike a mutually beneficial deal,” said a spokesperson.
“That remains the goal on both sides and we are confident that this will be achieved.”
