The “margins for error” in the Scottish economy are getting tighter, a leading think-tank has said, with rising household debt, government austerity measures and the UK’s potential exit from the EU posing significant threats.
The report says that Scottish growth is set to slow further as falling oil prices weigh heavily north of the Border, with the economic performance beginning to diverge “quite markedly” from that of the UK overall.
This deviation is occurring even though expansion in the UK as a whole has slowed significantly, the report from Strathclyde University’s Fraser of Allander Institute said yesterday, as it cut its Scottish growth forecast for this year to 1.9 per cent, down from 2.2 per cent in November.
It also downgraded its growth forecast for 2017 to 2.2 per cent from 2.5 per cent previously. Brian Ashcroft, emeritus professor of economics at Strathclyde University, said recent hints by the Chancellor of further fiscal tightening also boded ill for the economy.
George Osborne slowed the pace of cuts in his last spending review, but persistently weak tax receipts since then have led him to suggest that further reductions will feature when he presents the Budget on 16 March. “With growth slowing further across the UK and even more so in Scotland, now is not the time for the Chancellor to adopt more austerity measures which will slow growth further and only worsen the flow of tax revenues to the Exchequer,” Ashcroft said.
The Institute’s regular economic commentary, sponsored by PwC, said support for the Scottish economy had come in large part from growing domestic demand and strong construction output underpinned by public infrastructure projects.
Jobs growth is expected to continue, with the Institute predicting the addition of 37,000 jobs this year and 47,000 in 2017. Ashcroft added:“The picture is not disastrous, but the margins for error are getting tighter.”
He said that part-time and self-employment were driving jobs growth, meaning the total number of hours worked had not increased significantly. Full-time employment remains 3 to 4 per cent below its pre-recession peak. Meanwhile, the growth in domestic demand has been driven by household spending.