Scots economy to improve amid ‘bolstered confidence’

The Scottish economy is expected to improve in 2024 after little growth over the course of 2023, according to the latest quarterly Economic Commentary from the Fraser of Allander Institute (FAI) at the University of Strathclyde.

In the Deloitte-sponsored Economic Commentary, the Strathclyde researchers have set out their new forecasts for the Scottish Economy.

The economists are forecasting growth of 0.6% in 2024, 1.1% in 2025 and 1.2% in 2026.

“Whilst these forecasts are slightly weaker than previous forecasts, it still points to improving conditions in the economy over the course of this year …” said the Institute.

“The wider assessment of business and consumer sentiment shows steady improvement as we move into 2024.

“While still weaker than pre-pandemic levels in general, this improvement is consistent with the cautious optimism displayed in these forecasts today.”

Angela Mitchell, Senior Partner for Scotland at Deloitte, said: “Deloitte’s latest Chief Financial Officers Survey found that the UK’s finance chiefs are starting the year in relatively positive spirits, with sentiment among them rising for a second consecutive quarter and running at well above average levels.

“Despite this, they remain focused on defensive strategies.

“Overall, a bolstered sense of confidence among both businesses and consumers has signalled a positive start to the year, and an anticipated fall in inflation and return to growth are very much within sight.”

FAI Director Mairi Spowage said: “Signs are more optimistic for 2024. As well as businesses and consumers indicating that they feel more positive, the Bank of England has also signalled that interest rates are likely to have peaked – raising the prospect of rate cuts over the course of the year.”

In this quarter’s Commentary, the Institute also analyses the decisions that the Scottish Government took as it presented its Budget for the forthcoming financial year.

João Sousa, Deputy Director of the Institute, said: “The headline grabbing measure from the Scottish Budget were definitely the introduction of a new income tax band for those on incomes between £75,000 and 125,000.

“However, this raises around £74m – not insignificant, but small in the context of the Scottish Budget.

“Much more significant were the ‘non-decisions’. For example, the decision not to raise the higher rate threshold by inflation raises £300m for the Scottish Government.”

Angela Mitchell added: “December’s Scottish Budget saw the introduction of the advanced rate, and increase in the top rate of income tax, measures which are intended to raise tax revenue.

“However, it is difficult to predict individual taxpayer behaviour in response to these higher rates of personal tax: if individuals were to limit their taxable income by making additional pension contributions, that could ultimately reduce the benefit to the Budget.

“Some may seek to limit their working time if they perceive that their after-tax, take-home pay from an additional hour of work is insufficient.

“This could be translated into not working overtime, or adopting a reduced-hours working week, which could have a profound effect in reducing productivity and growth in the wider Scottish economy.”