SCOTLAND will finally complete its recovery from the financial crash and the great recession in 2014, new economic analysis says today.
The paper by the Centre for Economics and Business Research (CEBR) markedly revises upwards its prognosis for Scottish growth over the coming two years, predicting a healthy 2.2 per cent increase next year, the best rate since 2007.
That will ensure that the country passes the output peak it registered prior to the financial crisis in 2008 – ending a six-year economic trough.
The report also says that, as the economy recovers, unemployment will continue to fall and, by 2015, will be at its lowest since 2008.
The prediction will be welcome news for the coalition government ahead of the 2015 general election, when its handling of the economic crisis is certain to be key to voter behaviour.
It was also welcomed last night by finance secretary John Swinney, who said there was evidence that Scotland was now growing faster than the UK.
However, there remain fears that an up-tick over the next two years cannot be sustained, following evidence that most of the growth is being created by more debt-fuelled consumer spending.
The predicted increased rate of growth for Scotland comes after a survey earlier this week showed the UK’s huge services sector was booming at its fastest rate since 1997.
The Bank of England is widely expected to revise its own quarterly growth forecasts next week – with hawkish economists saying the spurt should prompt a small increase in the country’s record low interest rates.
Today’s CEBR report concludes that the economy will expand by 1.4 per cent over 2013 as a whole and by 2.2 per cent in 2014. Both figures are up on its previous estimates of 0.8 per cent and 1.3 per cent.
The group has raised its figures as a result of a sharp rise in consumer confidence, along with a reduction in the “household saving ratio”.
The growth will be based on strong expected performance by Scotland’s large business services sector, which should counter-balance a gradual drop-off in the importance of the oil industry.
Over the medium term, the CEBR estimates growth will average 1.6 per cent up to 2018 – a slower rate caused by planned £2.2 billion cutbacks for Scotland’s public services. This new forecast means the Scottish jobless rate is projected to fall from 7.4 per cent on average in 2013, to 6.1 per cent by 2018 – a change from the 7.3 per cent forecast for 2018 in July.
CEBR senior economist Rob Harbron said: “It’s very encouraging to see relatively high levels of business and consumer confidence returning to Scotland, which are expected to help boost growth in 2014. Although pressures from government cuts remain on the horizon, Scotland looks to have escaped the weak growth conditions seen over much of the past five years.”
Douglas McWilliams, executive chairman and CEBR founder, added: “The improved forecast is great news for Scotland. And if, after the independence referendum, Scotland settles on a more pro-private sector economy, there is a good chance prospects could improve further.”
The CEBR forecasts are similar to numbers issued by the Fraser of Allander Institute at Strathclyde University last week. It says growth in 2013 will be 1.3 per cent, rising to 1.8 per cent in 2014, and 2.1 per cent in 2015.
However, the institute has warned the growth may be unsustainable unless more wealth is derived from exports and business investment.
Mr Swinney said last night: “This positive [CEBR] report highlights the significant economic progress being made in Scotland.”