Flatlining growth paints grim picture for Scottish economy

Scotland's economy is facing a grim outlook with a warning from business chiefs that the country's flatlining growth will continue to lag behind the rest of the UK.
David Lonsdale Director Scottish Retail ConsortiumDavid Lonsdale Director Scottish Retail Consortium
David Lonsdale Director Scottish Retail Consortium

The state of the domestic economy has been singled out as a barrier to growth in a survey by the Federation of Small Business (FSB) in Scotland with a looming squeeze on household budgets likely hold back the prospect of an imminent recovery.

The Scottish Government said its commitment to economic development dwarves the rest of the UK, but opponents insist a “punishing” tax regime imposed by ministers is hurting smaller firms.

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The latest Scottish Small Business Index showed that confidence among firms is still in negative territory at -17.8 points for the first quarter, although this has eased a few points on the record low of the previous quarter.

Over the same period, the equivalent UK index climbed from -2.5 points to +6.0 points.

FSB Scottish policy convener Andy Willox said: “Scottish firms are still gloomy about prospects, and far less optimistic than the average UK business. If we’re to restore Scottish confidence and turn firms’ investment ambitions into reality, we need to do more to reassure our business community.

“Last week, valuable details emerged regarding the Brexit transition period. This is a step in the right direction – but as many businesses plan many years in advance, we must see the final Brexit terms as soon as possible.”

The FSB’s research shows that more than half (55 per cent) of the businesses surveyed identify the condition of the domestic economy as a barrier to growth. And a net balance of 13.5 per cent of Scottish small businesses reported a fall in revenues over the past three months. Concerns regarding consumer demand were identified as the second largest barrier to growth for Scottish small businesses. On a UK-wide basis, the FSB’s research showed that firms in sectors reliant on consumer spending – such as retailers and hospitality businesses – are markedly less confident.

The balance of firms looking to increase investment is down slightly on the last quarter, but still shows that a majority of Scottish firms are prepared to spend.

Scotland’s economy has been lagging behind the rest of the UK in recent years. The most recent GDP figures for the third quarter of 2017 showed that Scottish growth of 0.2 per cent was half the rate across the UK. The recently established Scottish Fiscal Commission warned in its inaugural forecast in December that the economy is facing “subdued” growth over the next five years. The independent body has predicted the Scottish economy will grow at less than 1 per cent per year until 2022.

David Lonsdale, director of the Scottish Retail Consortium, warned a looming squeeze on spending could further undermine growth.

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A Scottish Government spokesman said ministers are “absolutely committed” to growing the economy.

But Conservative economy spokesman Dean Lockhart said: “With a punishing tax regime and an SNP government which does nothing to help business, it’s no wonder firms in Scotland are less optimistic about the future.”

Labour’s economy spokeswoman Jackie Baillie said: “The SNP has held back Scotland’s economy for more than ten years, doing nothing but tinker around the edges.”