Scottish economic growth concern

Growth in Scotland is diverging from the UK despite being boosted by public investment in infrastructure, according to leading economists.

Strathclyde University’s Fraser of Allander Institute said Chancellor George Osborne should rethink cuts in tax credits and the Bank of England should hold interest rates to address the situation.

Domestic demand is driving growth across Scotland and the UK, with construction the main impetus north of the border.

Public spending on infrastructure is seen with such projects as the Queensferry Crossing and the Borders railway.

In contrast the service sector is suffering from the onshore impacts of prolonged low oil prices.

The picture is reversed in the UK where the service sector is the main driver with construction weakening.

Domestic demand continues to be boosted by low inflation, net immigration into the UK, low interest rates, and some pick-up in wages and earnings.

Forecasts for Scottish GDP growth have been revised downwards at 1.9% for 2015 and 2.2% for 2016, but upwards at 2.5% for 2017.

The institute considers threats to growth remain, and is concerned about Scotland’s weak productivity and poor export performance which could have long-term implications.

Brian Ashcroft, emeritus professor of economics at Strathclyde, said: “With growth slowing right across the UK and especially in Scotland, now is the time for the Chancellor to rethink his cuts to tax credits and for the Bank of England to continue to hold rates.

“Scotland’s weak productivity and poor export performance necessitates that the Scottish Government tackle these issues more directly if it is to raise the long-term growth rate of Scotland’s economy.”

The Queensferry Crossing is one of the main infrastructure projects in Scotland.