Brexit uncertainty bites on Scottish GDP and housing market growth - PwC

Scottish GDP growth will be below the UK average, coming in at around 1.2 per cent in 2017 and 1.1 per cent in 2018, according to the latest projections from PwC in its UK Economic Outlook.

This is due to slower consumer spending growth and the drag on business investment due to ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations.

While it means the country should avoid recession, it puts Scotland slightly at the lower end of the economic table over the coming two years with Wales seeing growth of 1.3 per cent and 1.2 per cent while England will grow at 1.5 per cent and 1.4 per cent over 2017 and 2018. Only Northern Ireland fares worse with growth of 1.1 per cent and 0.9 per cent consecutively.

UK economic growth held up better than expected in the six months following the Brexit vote but growth slowed in the first half of 2017 as inflation rose sharply, squeezing household spending power.

PwC expects consumer spending growth to continue to be moderate in 2017-18 as inflation eats into real spending power and wage growth remains subdued despite record employment rates.

And while Scotland fares comparatively close to the rest of the UK in terms of GDP, the picture is a little different when comparing the Scottish housing market to the rest of the UK over the coming years.

While the country has moved on from a dip of -0.2 per cent in prices in 2016 to a projected 2.5 per cent increase in 2017, many parts of the Scottish market have yet to recover to pre-crisis 2007 levels with Inverclyde, East Ayrshire, North Ayrshire and West Dunbartonshire all having seen the worst declines relative to pre-recession peaks.

Housing transactions, which tend to be more volatile than prices, are where the uncertainty caused by Brexit has manifested itself most strongly. Year-on-year the number of transactions have been down for twelve consecutive months.

Lindsay Gardiner, regional chair for PwC in Scotland, said: “While some may see concern at the fact Scotland and Northern Ireland are at the bottom in terms of GDP improvement, there is actually very little separating most of the UK. This year the best growth we expect any region - except for London - will see is 1.5 per cent and it is 1.4 per cent next year.

“Where concerns should perhaps be focused is around wage growth as many are offsetting limited growth through increased borrowing - which may have a longer term impact via interest rate rises or employment downturn.

“It’s too early to speculate on how the Brexit talks are going to impact growth, however current exchange rates have some offsetting benefits for net exports.

“The main message we are discussing with businesses at the moment is to consider where Brexit may have an impact and to make contingency plans for a number of scenarios, particularly those who may face changes in customs tarrifs or employment challenges.”