Economy bounces back, but needs ‘Brexit clarity’

Uncertainty over Brexit continues to loom over Scotland’s economic recovery, according to the Fraser of Allander Institute (FAI).

In its latest economic commentary the University of Strathclyde-based research institute said the UK Government should provide greater clarity on the specific powers it envisages transferring to the Scottish Parliament after the UK leaves the EU.

While the latest data showed Scotland’s economy bounced back in the first three months of 2017, it came on the back of “an exceptionally weak last two years,” according to the FAI.

“Analysts say growth remains fragile and well below trend,” said the FAI.

“And whilst employment is at a record high, household budgets continue to be squeezed by rising inflation eroding take-home pay.”

Overall, the FAI’s forecast for growth in 2018 remained the same as in June at 1.4% — while its forecast growth for 2019 has been revised upwards to 1.7%.

Graeme Roy, Director of the FAI, said: “The latest leading indicators suggest the economy continues to recover, albeit at a relatively fragile pace.

“We believe Brexit has the potential to act as a long-term brake on Scotland’s growth potential and, to date, very little progress seems to have been made by the UK Government in its negotiations with the EU.

“One area the UK government could provide greater clarity on is over the specific powers they envisage being transferred to the Scottish Parliament post-Brexit.

“This would help enable preparatory discussions between business and the devolved administration.

“On balance our forecasts are based upon the assumption that a constructive deal between the UK and the EU is reached.

“Should this not occur, outcomes towards the lower-end of our forecast ranges are more likely.”

John Macintosh, head of tax for Deloitte in Scotland, said: “Despite the considerable economic challenges, most sectors are actively looking to use technology to deliver gains in productivity, develop new products and services and grow into new markets.

“The challenges created by political uncertainty can’t be underestimated and there is work to do if we are to realise the latent potential in the Scottish economy.

“However we’re encouraged to see the opportunity laid out by this report – negotiating a path through the obstacles must be a key focus over the next few years.

“It should help raise productivity, which is vital to our long term economic success.”