Economic growth forecast downgraded

Economic thinktank the Fraser of Allander Institute has significantly downgraded its forecast for growth in Scotland due to the rising cost of living.

The thinktank estimates the Scottish economy will grow by 3.5 per cent in 2022 – down from the 4.7 per cent it said in December.

It is slightly lower than the OBR forecast for the UK economy, which projects growth of 3.8 per cent.

The institute also warned that while the economy has recovered to pre-pandemic levels as a whole, there are big difference between sectors, with hospitality and leisure struggling.

And it said it is likely these businesses will continue to have a difficult time in the months ahead as people curb their expenditure in light of rising food, fuel and energy costs.

The thinktank’s economic commentary said that while the UK Government has announced some measures to support families and businesses through the cost-of-living crisis, it would not be enough to help the least well off, because their incomes were being “eroded by inflation”.

Director Professor Mairi Spowage said: “Consumers and businesses are going to feel the squeeze in the coming months, if they haven’t already, with soaring energy and food bills.

“This has the potential to limit the economic recovery we hope to see during 2022, as consumers cut back on discretionary spending, and even perhaps businesses limit production due to input costs.”

Growth for 2023 is expected to be 1.5 per cent, and for 2024 1.4 per cent.

But the thinktank added the forecasts were “hugely uncertain” given the evolving economic situation as well the knock-on effects of events in Ukraine.

The latest data for businesses indicate ongoing problems with supply shortages, as well as growing concerns about energy costs.

One in five firms expect to reduce operations in 2022 due to higher energy bills.

Meanwhile, three in five firms are struggling to hire staff due to a lack of skills and experience.