Strathclyde University’s Fraser of Allander Insititute has warned the Chancellor that repeated warnings about “difficult decisions” will “dent” confidence for both businesses.
Professor Mairi Spowage, director of the think tank, said this could ultimately offset the “softening economic performance” experienced over the summer.
Her comments came as the institute upgraded its forecast for economic growth, saying GDP in Scotland could rise by 0.9% in 2024 – up from the 0.7% it had forecast in June.
Its latest economic commentary, sponsored by Deloitte, said that this change “reflects the modest economic improvements observed in recent months”.
READ MORE:
- Voters blame Tories (closely followed by the SNP) for state of economy
- 'The Last of Us’ zombie spider fungus found in Scotland
- Scotland’s largest city ‘running out of office space'
But the report added: “Despite the near-term optimism, projections for 2025 and 2026 remain unchanged at 1.1% and 1.2% respectively.”
It found that economic growth in 2024 had been “more sustained than the stop-start pattern we saw in 2023” – with the report noting Scottish growth figures of 0.6% for the first three months and 0.5% for the period April to June were “much stronger than in recent years and just lagging behind the UK slightly”.
But it added that economic growth in May and June had been “close to zero”, with this followed by a 0.3% rise in July.
Meanwhile UK data for July “suggested that the economy was flatlining”, with researchers saying this could mean that “sustained growth may be difficult to maintain for the rest of the year”.
Rachel Reeves is due to set out her tax and spending plans at the end of the month.
She and the Prime Minister have already warned that in a bid to tackle what they say is a £22bn black hole in the public finances, the budget will be “painful” and that “things will get worse before we get better."
Earlier this week, it emerged that the Chancellor had asked her colleagues to draw up plans for billions of pounds in cuts to infrastructure projects over the next 18 months.
The Guardian reported that members of the cabinet have been asked to model cuts to their investment plans of up to 10% of their annual capital spending.
The budget on October 30 is expected to include a number of other spending efficiencies, as well as a slew of tax rises.
The new Labour government blames Rishi Sunak’s administration for a number of unfunded commitments.
However, the Tories say Keir Starmer spent an eye-watering amount on settling public sector pay disputes, accounting for as much as £9bn of the deficit.
READ MORE:
- SSE set for bumper profits after windy weather boost
- Scheduled flight times to change on 'lifeline' Scottish air route
- Ayrshire farm ploughed by Robert Burns to boost milk output
Prof Spowage said: “The new Chancellor Rachel Reeves has set out her view of their fiscal inheritance and the difficult decisions which may need to be made in order, as they would see it, to restore economic stability.”
Prof Spowage added: “The rhetoric around this has the potential to dent business and consumer confidence and contribute to the softening economic performance over the summer.”
But she added: “It is always difficult to definitively say that – the economy is a dynamic organism rather than a predictable mechanism.
“Many businesses may well be waiting to see what is in the Budget on October 30 to have the confidence to grow and invest.”
Douglas Farish, head of tax for Scotland at Deloitte, meanwhile highlighted the “understandable uncertainty” among both the public and private sectors ahead of the UK Budget and the Scottish Budget, which will take place just over a month later on December 4.
Mr Farish said: “With the country facing economic challenges and financial constraints, bold public service reform is not just desirable – it’s essential to improve the way public services are delivered.
“As we approach the UK Budget in October and the Scottish Budget in December, there is understandable uncertainty across both the public and private sectors.
“Amidst these challenges, businesses and communities will be looking for stability and a clear path forward.
“It’s critical that these announcements provide thoughtful and decisive reforms that address today’s fiscal pressures, creating a more efficient and resilient public sector that can help navigate these economic headwinds while facilitating long-term, sustainable growth.”
A UK Government spokesperson said: “The Chancellor has been clear that the prize for bringing stability to our economy is investment and well-paid jobs, which is why next month’s Budget will be about fixing the foundations of our economy, so we can deliver on the promise of change.
“We are committed to working with the Scottish Government on our shared priority to kickstart economic growth so we can make every part of Scotland better off.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel