Lower business investment and weak consumer confidence amid Brexit uncertainty is taking its toll on the Scottish economy and housing market, according to a forecast published today.
The latest economic outlook report from PwC predicts that Scottish GDP growth will be below the UK average this year and next, due to the ongoing political and economic uncertainty around the outcome of the negotiations with Europe.
Many people are offsetting limited wage growth through increased borrowingLindsay Gardiner
Although house prices in Scotland are this year expected to recover from last year’s dip, growth is forecast to slow in the year ahead with the number of transactions continuing to fall.
And while the 1.2 per cent GDP growth pencilled in for 2017 and 1.1 per cent in 2018 means the country will avoid recession, Scotland is expected to perform poorly compared to other parts of the UK.
England is forecast to see growth of 1.5 per cent and 1.4 per cent over 2017 and 2018 and Wales 1.3 per cent and 1.2 per cent. Only Northern Ireland fares worse than Scotland in the forecasts with growth of 1.1 per cent and 0.9 per cent consecutively.
Overall, the report found that UK economic growth held up better than expected in the six months following the Brexit vote but growth slowed in the first half of 2017 as inflation rose sharply, squeezing household spending power.
Lindsay Gardiner, regional chair for PwC in Scotland, said the report painted a picture of weak UK-wide growth.
“While some may see concern at the fact Scotland and Northern Ireland are at the bottom in terms of GDP improvement, there is actually very little separating most of the UK,” he pointed out.
“This year the best growth we expect any region – except for London – will see is 1.5 per cent and it is 1.4 per cent next year.
“Where concerns should perhaps be focused is around wage growth as many are offsetting limited growth through increased borrowing – which may have a longer-term impact via interest rate rises or employment downturn.
“It’s too early to speculate on how the Brexit talks are going to impact growth, however current exchange rates have some offsetting benefits for net exports.”
Although the Scottish housing market as a whole has seen a recovery this year with a projected 2.5 per cent increase in prices compared to the 0.2 per cent fall in prices seen in 2016, the report found many regions have yet to recover to pre-crisis 2007 levels
Inverclyde, East Ayrshire, North Ayrshire and West Dunbartonshire have seen the worst declines relative to pre-recession peaks although Shetland has seen some of the strongest growth in the UK.
The report said housing transactions, which tend to be more volatile than prices, are where the uncertainty caused by Brexit has manifested itself most strongly. Year-on-year the number of transactions have been down for 12 consecutive months.