Economic Commentary [October 2023]

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Abstract

Growth in the economy has been faltering and pretty muted over 2023, with a high interest rate environment and wider economic uncertainty leading to many businesses choosing to delay or cancel investments.

Whilst not in the recession that many economists were predicting at the end of 2022, monthly economic figures have been very mixed, which means growth overall for 2023 is likely to be pretty poor.

The most recent data on inflation, which held steady at 6.7% in September, shows that the high inflationary and interest rate environment is likely to persist for longer than previously thought – therefore it is likely that there are more risks to the downside for our forecasts numbers than in the previous quarter.

We are now forecasting growth of 0.2% in 2023, 0.7% in 2024 and 1.2% in 2025. For 2023, this is a revision down from our previous set of forecasts in June, as data for 2023 to date has been much weaker than expected. The forecasts for 2024 and 2025 have not changed since June.

Analysis in the Commentary this quarter includes a detailed look at the hospitality sector in Scotland. This sector, one of the hardest hit over the period of the pandemic, is a large employer in Scotland and the institute has been carrying out research with employers and employees into how pay and conditions in the sector can be improved.

The Commentary also looks ahead to the Autumn Statement, which will be presented by the UK Chancellor on 22nd November. This will be important to set the scene – and indeed broadly the spending envelope - for the Scottish Budget on 19th December.

The outlook for the public finances continues to be challenging, with slow growth translating into weak tax revenue forecasts. Despite recent positive revisions to UK growth, this is unlikely to translate into more fiscal headroom for the Chancellor.

This will mean that the spending envelope remains tight, which will put further pressure on the Scottish Government’s finances in the run-up to the Scottish Budget. There have been a number of spending commitments made by the Scottish Government in recent weeks that are likely to make the situation more challenging.
Original languageEnglish
Number of pages28
JournalFraser of Allander Economic Commentary
Volume47
Issue number3
Publication statusPublished - 25 Oct 2023

Keywords

  • Scotland
  • Scottish economy
  • UK economy
  • hospitality
  • business investment
  • Scottish budget
  • economic forecasting

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