THE Scottish economy is enjoying a “strong recovery”, with employment and productivity up and strong growth forecast in production and manufacturing, according to an economic think-tank.
But the Fraser of Allander Institute (FAI) report warned that London’s “booming and probably overheating” housing market arguably poses the greatest threat to jobs and output growth.
Economic expert Professor Brian Ashcroft, of Strathclyde University, warned that the Bank of England must avoid increasing interest rates as a way of dealing with the rising property market in the South East, as this could result in the recovery across the UK being “dampened”.
He was speaking as the think-tank published its latest commentary on Scotland’s economy.
While the institute, which is based at Strathclyde University, said the economy was doing well, it also warned there are still risks from an “unbalanced recovery, falling real wages, booming house prices in the London housing market and deflation in the eurozone”.
Prof Ashcroft said the Grangemouth dispute which shut down the refinery plant last October had lowered Scottish GDP growth in the final quarter of last year, “masking” the strength of the recovery.
“However, we are concerned that the risks to the recovery have widened and deepened,” he said. “Household spending is too reliant on further borrowing as real wages have fallen, net exports continue to contribute little to growth and business investment is only just beginning to pick up.
“But it is the boom in the London housing market that causes us most concern. We believe the Bank of England must avoid raising interest rates on that account. With Scottish house prices hardly rising at all, it is inappropriate for the recovery to be dampened across the UK for what is clearly an issue centred on London.”
Finance secretary John Swinney said: “These latest independent forecasts from the FAI 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. The FAI also expects Scottish unemployment to continue to fall over the forecast period as more jobs are created in the economy.”