Scottish economic growth ‘to halve’ as Brexit bites

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Growth in Scotland’s economy is expected to be cut in half next year as uncertainty over the impact of Brexit takes its toll, a gloomy report warns today.

PwC’s latest UK economic outlook predicts economic growth in Scotland will fall from 1.8 per cent in 2016 to just 0.9 per cent in 2017.

PwC predicts a sharp drop in growth in 2017 but expects recession to be avoided. Picture: John Devlin

PwC predicts a sharp drop in growth in 2017 but expects recession to be avoided. Picture: John Devlin

That is lower that the 1.2 per cent figure forecast for the UK as a whole – down from 2.1 per cent – but both Scotland and the UK are expected to avoid recession.

The UK-wide slowdown is blamed in particular on “the drag on investment from increased political and economic uncertainty following the Brexit vote”.

READ MORE: Scotland’s private companies show lacklustre growth

PwC government and public sector partner Paul Brewer said the Scottish figures highlighted a need for further focus on the nation’s key sectors “to ensure that the current flirting with recession is as close as we get”. The outlook for Scotland’s employment market continues to be weak and it is the only region of the UK where employment is expected to fall, although the rate of decline is expected to fall from -0.4 per cent in 2016 to -0.2 per cent in 2017.

There is a challenge here to identify why this is happening

Paul Brewer

Brewer said official job figures for June to August showed the economic inactivity rate – the proportion of people not in employment or actively looking for work – for working-age adults fell UK-wide compared to the previous year but for Scotland the trend has moved in the other direction, with the rate for 16 to 64-year-olds rising from 21.3 per cent in June-August 2015 to 22.3 per cent in the same quarter in 2016.

“When you break down the Scottish figures, you see that the inactivity rate for men has only increased very slightly over this period from 17.9 per cent to 18 per cent, but the female rate has risen much more markedly from 24.5 per cent to 26.5 per cent,” he said.

Although Brewer said factors including the health of the working age population are thought be behind the figures, he added: “There is a challenge here to identify why this is happening and what – if anything – can be done to address it”.

PwC forecasts inflation to rise to about 2.7 per cent by the end of 2017 as the effects of a weaker pound feed through to consumers.

The analysis found trade prospects after Brexit offer risk and opportunities but forecast a public borrowing overshoot of over £100 billion in the five years to 2020/21 compared to the Office for Budget Responsibility (OBR) forecast prior to the EU referendum.

PwC chief economist John Hawksworth said: “A decline in business investment is likely to be the main reason for the slowdown in real GDP growth next year, driven in particular by uncertainty about the UK’s future trading relationships with the EU. We expect Brexit to exert a long, slow drag on growth, rather than giving the economy a short, sharp shock.”

PwC projects a continuing budget deficit of around £67bn this year.

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