Scotland’s growth to lag behind UK as investment is put on hold

Chief economist’s report warns of impact on incomes of leaving the EU

Scotland’s economic growth will struggle to keep up with rest of the UK over the next year, according a report from the nation’s chief economist warning of the negative impact of Brexit.

Brexit uncertainty will see firms delaying investment while inflation increases and weak wage growth put more pressure on household incomes.

The State of the Economy paper by Dr Gary Gillespie of the Scottish Government forecast that the economy will grow by an estimated 1 per cent next year.

GDP forecasts in Scotland for the remainder of 2017 are estimated at between 0.9 and 1.2 per cent, compared with 1.6 per cent for the rest of the UK.

Next year Scotland’s growth is the subject of varied forecasts including the 0.7 per cent estimated by EY Item Club and the 1.1 per cent estimated by PWC, with only the Fraser of Allander estimate equalling the 1.4 per cent expected in the rest of the UK.

Last night Scottish Conservative shadow finance secretary Murdo Fraser warned that Nicola Sturgeon’s plans to raise taxes threatened growth further.

Mr Fraser said: “These projections show growth in Scotland will continue to lag behind the rest of the UK for some time to come.

“If the SNP presses ahead with its tax raid on workers and businesses, that gulf will only grow further.”

In his paper, Dr Gillespie warned that political and economic uncertainty caused by Brexit was “weighing on households economic and financial decisions”.

He added: “It also chimes with the rise in inflation over the past year as a result of the fall in sterling and negative real wage growth creating a squeeze on household finances.”

There was better news in the North Sea oil sector with the document reporting rising confidence, despite concerns a no-deal Brexit could double trade costs for the sector.

Oil and gas production in Scotland increased by 2.9 per cent in 2016-17 with the the latest quarterly sales revenues approaching pre-2014 levels.

tom.eterkin@scotsman.com