A no-deal Brexit ‘could mean recession in Scotland’

21 Feb 19

A no-deal Brexit risks pushing Scotland into recession, doubling unemployment and creating a “major dislocation” to the economy, according to the Scottish Government’s chief economist.

A new paper from the chief economist warns that Scotland’s GDP has the potential to fall by up to 7% this year if the UK leaves the EU without a deal.

Setting out two possible scenarios – one involving short term interruption to supply chains and the other an extended period of disruption to both supply and demand – it says that Scotland’s exports to the EU could drop by between 10% and 20% amid heightened economic uncertainty.

Unemployment could rise from under 4% to as much as 8% - equivalent to an increase of 100,000 people - in response to the economic slowdown while migration fell as people decided not to move to Scotland and those already in Scotland chose to leave.

Collectively, these pressures could push the Scottish economy into recession during this year, with the potential for GDP to contract by between 2.5% and 7%, it said.

The shock that a no-deal outcome would trigger had the potential to generate “a major dislocation” to the Scottish economy, the paper warned.

This would occur through a number of channels, including disruption to logistics, supply, trade, investment, migration and market confidence.

“Whilst the scale of the shock is uncertain, it has the potential to push the Scottish economy into recession, with a corresponding increase in unemployment,” it said.

“If prolonged, the shock could lead to significant structural change in the economy.”

Although all sectors would be negatively affected, the most severe impact would be on agriculture, food and fishing, it warned, with rural areas most at risk because of their reliance on these sectors.  

Economy secretary Derek Mackay said the paper confirmed that all forms of Brexit would harm Scotland’s economy.

“However, the economic harm of Brexit will be exacerbated if the UK Government decides to crash out of the EU without a deal,” he said.

“Such an outcome, which the Prime Minister refuses to rule out, represents a clear and present danger to Scotland’s economy.

“There will be severe impacts for the economy, and for people and businesses across Scotland, under a no-deal Brexit and these impacts have the potential to push the Scottish economy into a deep recession, similar in scale to the financial crash of 2008.”

However, Scottish Secretary David Mundell told the Commons yesterday that in refusing to back the Prime Minister’s deal, the SNP had brought a no-deal outcome closer to reality.

“The SNP position is to contrive to bring about a no-deal Brexit, and the chaos and disruption that they know that would bring to Scotland,” he said.

A spokesperson for the UK Government said the best way to avoid no deal was for parliament to agree a deal. “Our deal is the best deal available for jobs and the economy across the whole of the UK, including Scotland, allowing us to honour the referendum and realise the opportunities of Brexit,” he said.

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