Cost-of-living crisis could be set to ease in 2024, says think-tank Fraser of Allander Institute - but Houthi rebels in Red Sea could still have negative impact on economy

The Fraser of Allander Institute says there is cause for optimism in the economic forecasts

The cost-of-living crisis could be set to improve this year, according to Scottish economic experts.

The Fraser of Allander Institute said the economic forecast for 2024 was “optimistic”, with the think-tank predicting the economy will grow by 0.6 per cent.

However, the institute warns wider geopolitical factors, such as the ongoing disruption to shipping in the Red Sea, could still have a negative impact on the economy.

The cost-of-living crisis could ease in 2024, according to experts from the Fraser of Allander Institute.

Professor Mairi Spowage, director of the institute, said interest rates may now have peaked and could fall over the course of the year, which could mean household costs will rise at a slower rate.

She told the BBC: “It is nice to start the year with a touch of optimism. This time last year we were expecting the economy to go into recession in 2023, but the good news is that didn’t happen.

“But over the course of 2023 growth was stuttering, so we are hoping in 2024 we can return to sustained growth.”

Prof Spowage said a lot of this was down to easing inflation, which at the start of 2024 sat at around 4 per cent.

“It is still double the Bank of England’s target and, of course, that doesn’t mean prices are starting to fall, they are just rising much less quickly,” she said.

“But that will ease pressure on household budgets and raise prospects for businesses and consumers of an interest rate cut later this year, which will feed into optimism and stimulate the economy as well.”

Just before Christmas Rishi Sunak claimed victory for halving inflation, which was one of his five key pledges as Prime Minister.

However, the Fraser of Allander Institute said a lot of this result was down to the wider geopolitical environment rather than direct actions taken by the UK government.

On top of this, these factors could still play a negative part on the economy in 2024, such as attacks on shipping by Houthi rebels in the Red Sea, the institute suggested.

The Houthis are continuing to attack ships in the Red Sea despite airstrikes by the US and the UK, with the rebel group indicating it will escalate attacks if the war between Israel and Hamas does not end.

Prof Spowage said: “Continued disruption to worldwide shipping routes will potentially feed through to prices and we will feel that in our pockets because we import a lot of stuff in the UK, and that may throw the economy off course.”

She added: “The UK government will say they’ve done their part with massive tax cuts to limit inflationary pressures in the economy. But really interest rates are the reason inflation has fallen.”

The Scottish Government has said the latest economic forecast meant Scotland may be able to enjoy positive real wage growth.

Economy secretary Neil Gray said: “It is encouraging that these latest forecasts point to improving economic conditions and growth in Scotland over the coming year. Unemployment remains extremely low and we are seeing a return to positive real wage growth across our economy.

“The Scottish Government is acutely aware of the enormous pressures facing businesses and is taking decisive steps to offer support within limited powers and a challenging budget.”