Scottish economy to lag UK as labour pressures take toll

● Sharp fall in migration set to heighten challenges facing business, report warns

Scotland’s economic growth next year is forecast to fall behind the UK as the labour market weakens and business investment falters, according to an influential forecast published today.

Although Scotland’s economy is expected to have outperformed the UK in 2018 with 1.6 per cent gross value added (GVA) economic growth compared to 1.3 per cent across the UK, the latest EY Scottish Item Club report predicts the tables will turn next year. Scottish growth is forecast to slow to 1 per cent in 2019 while the UK figure is set to increase to 1.5 per cent.

The report warns a key factor in the worsening overall outlook for Scotland will be pressure on the labour market as it is hit by a triple whammy of slow population growth, an ageing workforce and a predicted 55 per cent fall in working-age migration.

Mark Harvey, EY senior partthe ner for Scotland, said: “Given Scotland is more reliant on migrant workers than other parts of the UK this collapse in the number of working age migrants is a significant challenge facing business and government.”

With Brexit on the horizon Harvey said it was vital Scotland’s economic growth doesn’t stall.

“Business leaders are seeking greater certainty from government that creating a stronger economy is possible in the near future,” he said.

“Scotland has a good proposition for investors and has consistently proved this through record levels of inward investment but we must continue to improve what we have to offer domestic and international investors.

“Business is doing what it can given the current level of assurance from government to ensure stability. Confidence needs to be boosted and while there is no silver bullet a clearer vision for improving the economic environment from the Scottish Government would be welcomed.”

report also predicts that Glasgow is set to take the lead for growth among Scottish cities over the next three years, ahead of Edinburgh and above the average growth rate for Scotland and the UK.

Glasgow is on course to achieve 2.6 per cent GVA growth this year, then average 2 per cent per year through to 2021 compared with 2.1 per cent and 1.6 per cent respectively in Edinburgh.

A number of significant investments in the city, including many in the financial services sector, are cited as the key factor in the expected outperformance.

Harvey said with an impending collapse in the number of working age migrants, “maximising the potential of the domestic population is a priority and will require investment in skills and training as well as new technologies so that workers have access to the latest equipment and techniques”.

Construction is forecast to have Scotland’s highest growth rate at 3 per cent but manufacturing is expected to fall to 0.3 per cent on the back of a slowing global economy.