Indyref2 and Brexit could slow recovery, report warns

The North Sea downturn is also weighing on Scotland's growth prospects. Picture: Andrew Milligan/PA Wire

The North Sea downturn is also weighing on Scotland's growth prospects. Picture: Andrew Milligan/PA Wire

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Scotland’s economy is forecast to continue to recover this year but uncertainty caused by Brexit and a second independence referendum will slow growth, a new report has found.

Researchers at Strathclyde University’s Fraser of Allander Institute predict the Scottish economy will continue to lag behind the UK, largely due to the downturn in the North Sea oil and gas industry.

Article 50 and the prospects of a second independence referendum will act as a headwind

Graeme Roy

• READ MORE: Brexit will have ‘profound consequences’ for Scots economy

In the three months to September 2016, the Scottish economy grew by 0.2 per cent, well behind the UK growth rate of 0.6 per cent, while for the year Scotland’s GDP increased by 0.7 per cent compared to a UK increase of 2.2 per cent.

The institute’s latest forecasts for Scottish economic growth are 1.2 per cent in 2017, 1.3 per cent in 2018 and 1.4 per cent in 2019, broadly unchanged from the previous forecast figures from December.

The report found that in the ten years since the start of the financial crisis, the Scottish economy has grown by an average of just 0.7 per cent each year – less than a third of its long-term trend, squeezing household income despite unemployment rates at near record lows of 4.7 per cent.

Institute director Graeme Roy called on both the Scottish and UK governments to “provide clarity and reassurance” over independence and Brexit respectively.

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He said: “Growth in the Scottish economy continues to lag behind the rest of the UK, driven in part but not entirely, by the ongoing challenges in the oil and gas sector.

“The immediate outlook for 2017 is marginally more positive than for 2016, with some important business surveys suggesting an increase in new orders and demand.

“That being said, in the current climate sentiment can change quickly and there remains a high degree of margin for error in all economic forecasts at the current time.

“Irrespective of your views over the long-term benefits of Brexit or independence, the increase in uncertainty caused by the triggering of Article 50 and the prospects of a second independence referendum will act as a headwind for many businesses.

“Just as it is the responsibility of the UK Government to provide clarity and reassurance wherever possible through the Brexit process, it is incumbent on the Scottish Government to do likewise around independence and to re-double their efforts to support the Scottish economy through these unprecedented times.”

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