SCOTLAND could have one of the lowest rates of economic growth in the UK this year, according to a new report.
The latest Economic Outlook from PwC anticipates growth of 2.8 per cent in the economy north of the border during 2014 - less than the UK average of 3 per cent .
In London the economy is forecast to grow by 3.4 per cent this year, and only three of the 12 regions of the UK - Northern Ireland, the North East of England and Wales - are expected to have a lower growth rate than Scotland.
The report also forecasts Scotland will have the lowest growth in house prices of any of the UK regions, predicting a rise of 4.6 per cent this year, compared to 8 per cent for the UK as a whole and 13.3 per cent in London.
PwC forecasts the UK to have the fastest growing economy of the G7 group of nations this year.
‘Deeper structural weaknesses’ which must be addressed
But while the report said the country is “growing relatively strongly at present”, it also said there are “deeper structural weaknesses” which must be addressed in the longer term, particularly around education and inequality.
The report said: “Maintaining recent relatively strong growth will also require increased productivity, which also requires improved education and skills levels, as well as increased business and infrastructure investment.”
‘The UK is growing relatively strongly at present’
It forecast the Bank of England’s Monetary Policy Committee would keep interest rates on hold at 0.5 per cent in the short term, but added it expects these to rise “gradually from late 2014 or early 2015 onwards, perhaps returning to around 4 per cent by 2020”.
“Overall, therefore, the UK is growing relatively strongly at present and has some important strengths, but it also has some deeper structural weaknesses to address in the longer term, particularly around education and inequality.”
Paul Brewer, government and public sector partner with PwC in Scotland, said the report provides “welcome signs that the Scottish economy is gathering real momentum”, but also added that issues such as “pre-referendum uncertainty” could be holding back investment.
He said: “From a business perspective, while we are seeing anecdotal evidence of increasing confidence across many business sectors, this isn’t necessarily feeding into the volume of investment that is needed to help balance the recovery. Unlike at the height of the recession, access to finance is not the key issue, with factors such as the time for investment decisions to be fulfilled and pre-referendum uncertainty more likely causes. We need to see a significant step up in investment if we are to really harness this economic momentum.
‘Testament to the strength of the performance in the Scottish economy’
“While higher interest rates will help savers and reduce pension fund deficits, households need to bear in mind likely future interest rate rises in any decisions on mortgages or other longer term loans.”
A Scottish Government spokeswoman said: “These latest independent forecasts from PwC revise up expectations for Scottish growth in 2014, which is testament to the strength of the performance in the Scottish economy, as well as the optimistic outlook for business.
“They follow the recent ITEM Club’s independent forecasts which predicted that 2014 is set to be the best year for Scotland’s economy since the global financial crisis. In addition, recent labour market statistics show improvements across all headline indicators in Scotland both over the quarter and the year, and Scotland is outperforming the UK as a whole in terms of employment and inactivity.
“The forecasts come on the back of the recent survey of inward investment from Ernst and Young, which again showed Scotland as the best performing UK location outside of London for overseas investment projects.”
‘Supporting the delivery of affordable homes’
She added: “This Government’s focus is on taking the actions that are right for Scotland’s economy and housing market - supporting the delivery of affordable homes, creating and protecting jobs and helping people to access home ownership where it is sensible and sustainable.
“As part of that, we are investing over £1.35 billion in affordable housing in the four years to March 2016. In addition our £275 million investment in Help to Buy (Scotland) is helping people to get on the housing ladder for the first time or move to a new property.
“It is only with the full powers that are available to us under independence that we will be able to take the decisions required to reach our full economic potential.