Economic growth forecasts for Scotland have been increased but remain “weak” for the next few years and hampered by Brexit uncertainty, according to a new report.
Researchers at Strathclyde University’s Fraser of Allander Institute now forecast growth of 1.1% in 2017, 1.3% in 2018 and 1.6% in 2018, a marginal increase in the institute’s July predictions.
The upward revision is credited to “signs the UK will press for a transition and not a ‘cliff-edge’ when leaving the single market”, the fall in Sterling, Bank of England stimulus and a “slightly less pessimistic environment for the North Sea”.
However, Scotland’s recent growth is a third slower than the UK, 0.7% for the year to June, compared with 2.2%.
The report’s authors said closing this gap will be a major challenge for the Scottish Budget announcement on Thursday as the new fiscal framework for Scotland’s increased tax powers means Scotland will lose out if it does not match the performance of tax receipts per head in the rest of the UK.
Institute director Graeme Roy predicts Finance Secretary Derek Mackay will “resist going much further” than current plans not to pass on the rise in the 40p tax threshold in Scotland and a council tax increase for top bands, but warns some services could face cuts of more than 10% in the next five years.
Researchers predict a particularly challenging outlook for households in the next three years due to rising inflation, limited employment and earnings growth and a freeze of many UK-wide in-work benefits.
They warn that while the terms and timing of Brexit remain unknown, a “considerable degree of uncertainty” surrounds the near-term economic outlook.
Mr Roy said: “The Scottish economy has remained relatively resilient in the face of challenging headwinds, with growth returning in the second quarter of 2016. Most indicators point to this growth having continued through the remainder of the year.
“But growth in the Scottish economy continues to lag behind the rest of the UK, driven in part, but not entirely, by the ongoing challenges in the oil and gas sector.”
A Scottish Government spokesman said the report acknowledged Scotland’s economy had shown resilience, “despite the UK government’s austerity regime and determination to pursue a hard Brexit.”