Scotland’s growth cooled by political climate

The think-tank expects 2014 to produce the best growth figures since the financial crisis. Picture: Phil Wilkinson

The think-tank expects 2014 to produce the best growth figures since the financial crisis. Picture: Phil Wilkinson

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Scotland’s economic growth is set for a slowdown next year as further political uncertainty weighs on consumer sentiment, according to the EY Item Club.

The think-tank expects 2014 to produce the best growth figures since the financial crisis, at about 2.8 per cent, but will then slow to 2 per cent over 2015. That means Scotland will still be lagging the wider UK, which the Item Club said is on course to grow by 3.1 per cent this year and 2.4 per cent in the next 12 months.

Dougie Adams, senior economic advisor to the EY Item Club in Scotland, said both the Scottish and UK economies face obstacles next year.

He said: “Scotland may yet experience a Quebec-style ‘neverendum’ effect, but the possibility of an EU referendum means the performance of the UK economy as a whole, particularly investment, is a hostage to political flux.”

The report also points to the prospect of consumer caution in the face of interest rate increases and depleted savings.

And while it does identify lower commodity prices, high and rising levels of employment, and the prospect of wages outpacing inflation as mitigating these pressures, it laments the weakness in ­exporting Scottish goods to overseas ­markets.

Jim Bishop, senior partner at EY in Scotland, said: “UK growth has helped increase domestic demand for Scottish products, but conversely, the slowdown in key emerging consumer markets like China is having an adverse impact on Scottish luxury goods exports.

“The predicted rise in Scotland’s economic output is cause for cheer, but the country’s narrow export base is preventing it from really taking off.”

The report also proposes that employment in Scotland will continue to rise, and suggest that the service sector remains the country’s “engine of employment creation”.

But the pace of job growth is likely to abate in line with economic growth and a tightening in the availability of suitably skilled staff.

The Item Club’s report, published today, coincides with the latest purchasing managers’ index (PMI) from Bank of Scotland, which is already showing a marked slowdown in growth.

The PMI suggests business activity in Scotland rose at one of the slowest in rates seen over the past two years in November as companies faced a weaker increase in incoming new work.

But the report also showed that cost pressures facing businesses ease to a post-financial crisis low.

And job creation remained strong, with employment rising at a solid and ­accelerated rate.

Bank of Scotland’s chief economist, Donald MacRae, said that overall the pace of growth had eased.

“November’s PMI fell to 52.8, indicating the Scottish economy continued to grow but a reduced rate compared to the summer months,” he said.

“Manufacturing sector output grew despite a fall in new order inflows, while new export orders fell for the fifth successive month, illustrating the challenge of increasing exports to a stagnating eurozone economy.

“All sectors employed more people in a welcome sign of continuing high levels of business confidence. The recovery continues but the pace has eased slightly.”

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