'Fragile' economic growth while Brexit and indyref uncertainties persist, warns Fraser of Allander
Both UK and Scottish governments need to provide fiscal clarity amid 'unprecedented' political uncertainty, warns Fraser of Allander institute
Economic growth in Scotland is expected to recover slowly over the next few years amid "unprecedented levels of policy uncertainty", according to the latest of the University of Strathclyde's economic forecasts.
The Fraser of Allander Institute’s new central forecasts are for economic growth of 1.2 per cent in 2017, 1.3 per cent in 2018 and 1.4 per cent in 2019, is in line with previous forecasts and would mean Scotland would continue to lag behind the rest of the UK.
This is largely driven by the economic downturn in North Sea oil and gas, which sees no sign of slowing.
"While positive, the outlook remains fragile and well below trend. The service sector will remain the dominant source of growth," the report said.
It also predicted "unprecedented" further political uncertainty would have an impact.
"The long-term implications of Scottish independence and the UK’s departure from the EU will be debated at length over the next 18+ months," it said. "Irrespective of the final outcome, the negotiation and referendum processes themselves will add an additional layer of uncertainty for business and act as a possible headwind to short-term growth prospects."
It added the process itself may be damaging, regardless of the outcome.
"This is not to say that one particular outcome is better than the other. It is simply to make the point that with uncertainty of such a magnitude now in play, we cannot expect these processes themselves – irrespective of the end result – not to have an impact."
And while investment has weakened, the report also pointed to yesterday's rising inflation figures, which will contribute to "materially weaker real income growth". The Scottish labour market has also weakened, it said.
Although the short term outlook for the UK as a whole had improved, it said, "these improvements are short-term and largely superficial."
In terms of Scotland's deficit, the gap between Scotland's spending and revenue is expected to fall as a percentage, it is likely to be six or seven per cent of Scotland's total output by 2020, well above the entry requirements for EU membership.
"Just as it is the responsibility of the UK Government to provide clarity through the Brexit process, it is incumbent on the Scottish Government to do likewise around independence and to re-double their efforts to support the Scottish economy through these unprecedented times," the report concluded.
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