The downturn in the oil and gas sector has prompted a downgrade of Scotland’s economic prospects.
The Fraser of Allander Institute said today that it expects the economy north of the Border to grow by 1.9 per cent this year – down from its forecast in June of 2.5 per cent.
Its prediction for growth next year was also trimmed, to 2.2 per cent from 2.3 previously, but it is forecasting a figure of 2.5 per cent for 2017, up from 2.3 per cent in June.
“Construction provides the main impetus in Scotland, with public spending on infrastructure underpinning growth,” today’s report said.
“Conversely, the service sector has been weakened by the onshore impacts of lower for longer oil prices, hitting business services in particular, as well as mining and quarrying. This picture is reversed in the UK: the service sector is the main driver with construction weakening.”
Separate figures released today show that output in the UK services sector accelerated for the first time since June.
Growth in the UK economy slowed to 0.5 per cent in the third quarter of this year, down from 0.7 per cent in the previous three-month period.
Brian Ashcroft, emeritus professor of economics at the University of Strathclyde, said: “With growth slowing right across the UK and especially in Scotland, now is the time for the Chancellor to rethink his cuts to tax credits and for the Bank of England to continue to hold rates.”
The Bank of England is expected to have kept rates on hold at their record low of 0.5 per cent when it announces the outcome of its latest monetary policy committee meeting tomorrow.
Ashcroft added: “Scotland’s weak productivity and poor export performance necessitates that the Scottish Government tackle these issues more directly if it is to raise the long-term growth rate of Scotland’s economy.”
Paul Brewer, PwC’s government and public sector leader in Scotland, said: “While it is encouraging to see the Scottish Government’s ongoing focus on infrastructure investment and hard evidence of the positive impact this is having on our construction industry, unless this is sustained over a long period of time there is a risk we will become increasingly exposed to shortfalls in the service sector.
“We are also seeing the effects of the low oil price manifesting themselves across other onshore sectors from engineering to hospitality – this is no longer the preserve of the oil and gas industry. Indeed, our latest UK hotel report noted a double-digit fall in occupancy levels and revenue per room across Aberdeen in the year to July 2015.”
Brewer added: “With oversupply in the oil market looking likely to continue in the medium-term, it’s crucial that the oil and gas industry swiftly adjusts to this ‘lower for longer’ scenario, working closely with the regulator and government to protect the long-term future of Aberdeen as a global hub.”