Report warns of no-deal danger

Experts say Scotland’s economy could suffer ‘real and adverse impacts’

A no-deal Brexit could have “immediate, real and adverse impacts” on trade in Scotland, a new report has warned.

Experts at professional services firm EY have warned of the consequences of the UK leaving the EU without a deal and having to resort to trading on World Trade Organisation terms.

The report also warned skills shortages could increase in part due to a fall in migrant workers coming to Scotland, with this “connected to the challenges created by Brexit”.

It forecast that 2019 “looks set to be a disappointing year”, with economic growth in Scotland, excluding the oil and gas sector, predicted to fall from 1.3% in 2018 to 1%.

A no-deal Brexit continues to be the “most obvious” risk to the economy, with the EY Scottish ITEM Club summer forecast stating: “Even if a deal is agreed in the coming months, there will still be difficult trade negotiations to follow – while other global worries mean Scottish companies are likely to remain very cautious in their investment and employment decisions.”

The report said: “while there are some domestic risks (to the economy), the main risks to the forecast originate beyond Scotland – particularly in the immediate short-term”.

It continued: “The most obvious continues to be a no-deal Brexit which, because of the delays that have already taken place, might hit economic growth in the second half of 2019 or, more probably, 2020 and beyond.”

The report added: “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.

“A consequent sharp fall in the exchange rate would, over time, also raise inflation and hence squeeze real household incomes, with the latter also affected by job losses.”

An anticipated rise in the number of Scots in work could boost employment by a “modest” 0.6% in 2019, after falling by 2% last year.

By 2022, employment could rise to just under 2.8 million, compared to slightly above 2.1 million in 2018.

But the report also warned the decline in the number of working-age people coming to Scotland was “speeding up”.

EY Scotland’s managing partner Ally Scott said: “Scottish consumer confidence and business sentiment are expected to weaken this year, with the global economy and Brexit uncertainty major causes. Even if a Brexit deal is agreed in the coming months, difficult trade negotiations are likely to follow.”

Finance Secretary Derek Mackay said: “The Scottish Government will continue to do all we can to support businesses and mitigate as far as possible the impact that Brexit will have on our economy.

“The first minister made clear the Scottish Government’s strong opposition to a no-deal Brexit during her recent meeting with the new prime minister.

“We are making every possible preparation for no-deal as long as it remains a threat but will continue to urge the prime minister to change course as a matter of urgency.”