Scots economy gains momentum, but shows need to tackle UK's 'ongoing' productivity gap, says PwC

The Scottish economy has grown in the three months to February, but has shone a spotlight on the “ongoing” productivity gap across the UK, which is set to avoid recession this year, according to a new report.

Scotland has seen gross domestic product expand by 0.3 per cent in the quarter, according to the latest PwC UK Economic Outlook.

The professional services giant said that whilst the rate of growth north of the Border is greater than that of England’s North East, South East, South West and West Midlands (all at 0.2 per cent), it was “somewhat slower” than regions such as London and Northern Ireland, which led at 0.9 per cent and 0.6 per cent respectively.

PwC added that such regional growth disparities highlight growth in sectors such as arts and entertainment, which have benefited London, while some northern regions – including Scotland – “have seen a slower pace of growth due to exposure to sectors such as manufacturing and those impacted by supply chain issues”. It also expects the UK to see around 0.1 per cent growth in 2023 and 1 per cent in 2024.

Jason Morris, regional market leader at PwC Scotland, says the ongoing productivity gap must be addressed. Picture: contributed.

Jason Morris, regional market leader at PwC Scotland, said: “Whilst it’s encouraging to see the Scottish economy strengthening and a more positive outlook with regards to any potential recession in 2023, the differences in growth rates in the north versus the south still points to an ongoing productivity gap that must be addressed.

“Our UK Economic Outlook predicts that London will continue to lead growth in the UK... However, this – along with a predicted growth in retail and the service sector going forward – presents a real opportunity for Scotland. That aside, there is still a real need to focus on training, development and education around the transference of skills in sectors like financial services and green energy – areas in which Scotland holds untold potential and that could hold the key to real and sustained economic growth.”

Meanwhile, 55 per cent of Scottish small to medium-sized enterprises (SMEs) expect revenues to increase this quarter, when compared to the first three months of this year, according to the latest quarterly Barclays SME Barometer. Colin O’Flaherty, head of SME at Barclaycard, said: “It’s unsurprising that in the immediate term, there are still wider concerns for businesses.”