Our recent economic forecasts and analysis of the Scottish economy have been set against a period of significant uncertainty. Political uncertainty is not unusual and for the most part, businesses and investors are used to dealing with changes in government priorities and indeed governments. However, the current level of such uncertainty is unprecedented. It is also different from normal in that the debates around Brexit and a possible further independence referendum concern the fundamental basis on which the Scottish economy has grown and developed over the last 40 years. That being said, with so little clarity around many businesses appear to be ‘looking through the uncertainty’ and are continuing to press ahead with day-to-day activities. Whilst the Scottish economy continues to lag the rest of the UK, a number of recent business surveys point to a welcome pick-up in activity toward the end of 2016 and into 2017. However, consumers appear wary about the outlook. Indicators of Scottish consumer confidence are much more negative than for the UK as a whole. It would appear that this, and not just the challenges in the North Sea, is one of the key reasons for Scotland’s relatively weaker recent performance. On balance, we forecast that the Scottish economy will continue to grow over the forecast horizon and more quickly than in 2016. The weight of probability suggests that it is likely to remain below-trend as policy uncertainties act as a headwind on growth. The Scottish labour market continues to hold up remarkably well. Employment rates are close to record highs, whilst the current unemployment rate of 4.7% is well below its long-run average. However with a rise in inactivity over the year, weak earnings growth and reduced average hours worked, the underlying picture is less positive than the headline figures suggest. Ultimately, whilst the policy focus will undoubtedly be dominated by ongoing debates around the EU and Scottish independence, it is important not to lose sight of the importance of domestic economic policies. Over the ten years since the start of the financial crisis in 2007, the Scottish economy has grown by just under 7% - equivalent to an average annual growth rate of 0.7% (less than a third of its long-term trend). GDP per head is just 2% higher over the same ten year period and the incomes of many households remain worse off. Strategies, action plans and ambitions around inclusive growth will only take us so far. What really matters are clear practical policy actions to support businesses, boost productivity, attract investment and create jobs. A renewed focus on how both the Scottish and UK Governments can use the current powers at their disposal to support the Scottish economy is needed.
|Number of pages||21|
|Journal||Fraser of Allander Economic Commentary|
|Publication status||Published - 22 Mar 2017|
- Scottish economics
- Scottish governance
- economic analysis