Economic analysis warns of slow growth in Scotland

1 Aug 19

Weak consumer and business confidence fuelled by Brexit uncertainty is likely to hamper growth in Scotland in the coming months, with a fragile start to the year suggesting slow growth in the global economy as a whole.

According to new analysis from the EY Item Club Scotland, while the UK would see a relatively small drop in growth of 0.1 percentage points to 1.3% this year, Scotland would share in the wider global pattern, achieving non-oil growth of just 1% this year.

In its summer update, the body warned that even if a Brexit deal were struck, the UK could become enmeshed in a series of tough trade negotiations, while other global concerns meant Scottish firms would remain “very cautious” in their approach to investment and employment.

A no-deal Brexit, resulting in a switch to World Trade Organisation trading rules, would have “immediate real and adverse” impacts on Scottish exports, and probably on the cost and availability of imports, it said. 

It added that the mini-boom in Scottish manufacturing that occurred last year was unlikely to persist, and predicted that firms could face growing skills shortages as a result of declining levels of inward migration. 

The managing partner of EY Scotland Ally Scott said critical decisions to be taken by Scottish firms would be influenced by a dip in general confidence. 

“Scottish consumer confidence and business sentiment are expected to weaken this year, with the global economy and Brexit uncertainty major causes,” he said.

“Even if a Brexit deal is agreed in the coming months, difficult trade negotiations are likely to follow.

“This, combined with other global worries, means that Scottish companies are likely to remain very cautious in their investment and employment decisions.”

However, the report sounded a more positive note on future years, predicting GDP growth of 1.3% next year and 1.6% the year after, significantly ahead of the official 1% forecast for each of those years from the Scottish Fiscal Commission.

It said its analysis of Scotland’s fiscal position drew on the latest Government Expenditure and Revenue Scotland (GERS) data, which put income tax revenue for 2017-18 £1bn higher than the SFC’s own estimates from outturn data.

Despite the different starting points, the predicted growth rates in income tax receipts from the two bodies were broadly similar, it said.

Overall, it estimated that between 2018–19 and 2022–23, public sector current receipts would rise in Scotland slightly faster than they would across the UK as a whole.

Assuming that total managed expenditure grew at the same rate in Scotland as at the UK level, it said Scotland’s net public sector borrowing would be £15bn in 2022–23, compared with £14.2bn in 2018–19. 

That would mean a decline in Scottish borrowing from 8.5% to 7.9% as a share of GDP, it said. However, in relative terms, borrowing remained “significantly higher” than at a UK level.

The SFC said it did not comment on other forecasts but considered all new data and analysis when developing its own.  “The commission always welcomes scrutiny and challenge to help us in ensuring that Scotland’s official forecasts are as accurate as possible,” a spokesperson said.

Did you enjoy this article?