By Ian McConnell
Business Editor
A LEADING think-tank has cut its forecast of Scotland’s economic growth next year to just 0.5 per cent, from 1.5% in March, highlighting the impact of the cost-of-living crisis.
The University of Strathclyde’s Fraser of Allander Institute notes in its latest quarterly economic commentary, sponsored by accountancy firm Deloitte and published today, that more than half of consumers are reporting spending less on non-essential items. Its analysis also observes that one-third of consumers are spending less on food and other essentials.
The think-tank declares: “Scotland’s economic growth forecast for 2023 has been revised down due to the impacts of cost increases on consumers and businesses, and the likelihood that these will persist for longer than previously thought.”
The Organisation for Economic Cooperation and Development forecast this month that the UK would stagnate next year and be the worst-performing economy among the Group of Seven leading industrialised nations by a significant margin.
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Fraser of Allander says: “There is an increasing fear that high inflation will be more persistent than was first thought, with expectations now that it may be 2024 before we get back to more normal levels of inflation.”
Annual UK consumer prices index inflation had by May surged to 9.1 per cent – its highest since 1982 – and the Bank of England has projected it will go above 11% in the autumn.
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Fraser of Allander declares: “The outlook has significantly worsened for 2023 since the last set of forecasts in March 2022.”
The think-tank says “it is likely that interest rates, which have risen sharply since the start of this year, will see further significant increases before 2023”.
The Bank of England has since late last year raised UK base rates from a record low of 0.1% to 1.25%.
Fraser of Allander has moved its forecast of growth in Scotland this year slightly higher, from the 3.5% it projected in March to 3.8%. However, the 2022 growth projection was downgraded in March from 4.7%.
Fraser of Allander is now predicting growth in Scotland of just 1% in 2024, having projected 1.4% expansion back in March.
The think-tank notes that “whilst much of the cost-of-living discussion is centred on rising energy and fuel prices, there are also significant increases in prices in the property and rental markets”.
Fraser of Allander adds: “In April, rental prices in Scotland increased to their highest levels ever. Rental prices have risen by 4.3% since February 2020, the second-highest increase in the UK behind Northern Ireland. This was a similar story for those looking to get on the property ladder, with house prices at similar levels to the start of the year, however still 12.6% higher than at the start of 2020.”
Mairi Spowage, director of Fraser of Allander, said: “The analysis we have carried out indicates that inflation will be higher and persist for longer than we thought in March. This has the potential to limit the economic recovery we hope to see during 2022 and 2023, as consumers cut back on discretionary spending, and businesses limit production due to input costs.”
Fraser of Allander notes “price increases across the board mean that the impacts are being felt differently by different types of consumers”.
It adds: “A younger demographic are more likely to say that property costs and public transport services have increased in price, whereas older age groups are more likely to say that food and fuel have gone up.”
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