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Economic growth forecast to fall in PwC analysis

Published 15/11/2016

Scotland is the only region of the UK which continues to have negative employment growth
Scotland is the only region of the UK which continues to have negative employment growth

Economic growth in Scotland is expected to fall by half in the next year as the country's negative jobs growth continues, experts have said.

PwC analysis in its latest UK Economic Outlook said economic growth in Scotland is forecast to fall from 1.8% in 2016 to 0.9% in 2017.

The drop is to a lower rate than the UK as a whole, which is forecast to fall from 2.1% to 1.2%, but both Scotland and the UK are expected to avoid recession.

The UK-wide slowdown is blamed in particular on "the drag on investment from increased political and economic uncertainty following the Brexit vote".

Scotland is the only region of the UK which continues to have negative employment growth, although it is forecast to go from -0.4% in 2016 to -0.2% in 2017.

PwC government and public sector partner Paul Brewer said official job figures for June to August shows the economic inactivity rate for working-age adults fell UK-wide compared to the previous year.

He said: "For Scotland, the trend has moved in the other direction, with the inactivity rate for 16 to 64-year-olds rising from 21.3% in June-Aug 2015 to 22.3% in June-Aug 2016.

"When you break down the Scottish figures, you see that the inactivity rate for men has only increased very slightly over this period from 17.9% to 18.0%, but the female rate has risen much more markedly from 24.5% to 26.5%.

"Our recent work ... suggests that the health of the working age population is one factor but there is a challenge here to identify why this is happening and what - if anything - can be done to address it."

PwC forecasts inflation to rise to about 2.7% by the end of 2017 as the effects of a weaker pound feed through to consumers, squeezing real spending power.

The analysis found trade prospects after Brexit offer risk and opportunities but forecast a public borrowing overshoot of over £100 billion in the five years to 2020/21 compared to the Office for Budget Responsibility forecast prior to the EU referendum.

PwC chief economist John Hawksworth said: " A decline in business investment is likely to be the main reason for the slowdown in real GDP growth next year, driven in particular by uncertainty about the UK's future trading relationships with the EU.

"We expect Brexit to exert a long, slow drag on growth, rather than giving the economy a short, sharp shock."

A Scottish Government spokesman said: "It is Brexit which is far and away the biggest threat to Scotland's economy, jobs and long-term prosperity, and it is the Scottish Government which is reacting to help ease the uncertainty caused by the UK Government who are yet to set out their plans.

"We have acted swiftly to support our economy, announcing a £500 million package of financial support for private sector business investment as well as £100 million of accelerated capital spending in this financial year to ease the uncertainty businesses face due to the Brexit vote.

"We're also in a position where the fundamentals of Scotland's economy remain strong, with GDP continuing to grow over the past year and 54,000 more people in employment compared to the pre-recession high

"The overall economic climate has changed as a result of the EU referendum, which is why we are determined to pursue every avenue to secure Scotland's continued place in the EU and the stability, jobs and investment that come from being part of the world's biggest single market."

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