Notably, the 2023 forecast is a downward revision from June’s figures, stemming from weaker than anticipated economic performance this year.

The Institute has released its quarterly Economic Commentary, sponsored by Deloitte, which assesses key data from the UK and Scottish economies.

The forecasts for 2024 and 2025 have not changed since June. The most recent data on inflation, which held steady at 6.7% in September, shows that the high inflationary and interest rate environment is likely to persist for longer than previously thought – therefore it is likely that there are more risks to the downside for these forecast numbers than when they were presented in June.

Analysis in the Commentary this quarter includes a detailed look at the hospitality sector in Scotland. This sector, one of the hardest hit over the period of the pandemic, is a large employer in Scotland and the institute has been carrying out research with employers and employees into how pay and conditions in the sector can be improved.

Professor Mairi Spowage, director of the Institute, said: “Growth in 2023 so far has presented a pretty mixed picture. While much better than we were expecting at the end of 2022 – with the predictions of recession proving thankfully unfounded.

“Despite this though, it is clear that businesses are not feeling that conditions are great right now, with many delaying or cancelling investment due to the high interest rate environment and wider economic uncertainty.”

Angela Mitchell, senior partner for Scotland at Deloitte, said: “This quarter’s commentary shows a thoroughly mixed outlook for our economy and, accordingly, for business and consumers. Notably, the rate at which businesses are delaying or cancelling investments is high.

“This chimes with findings from our latest CFO Survey, which found CFOs are focused on reducing leverage and capital expenditure is seen as a low priority.

“However, the commentary encouragingly notes that there are signs that the investment hesitation is only temporary.”

The commentary also looks ahead to the Autumn Statement, which will be presented by the UK Chancellor on 22 November. This will be important to set the scene – and indeed broadly the spending envelope - for the Scottish Budget on 19th December.

Ms Mitchell added: “The commentary raises the critical need for meaningful engagement and co-production between industry and government in enacting the kind of systemic change that is needed for vital sectors of our economy to flourish.

“Ahead of the UK Government’s Autumn Statement, which will be followed closely by the Scottish Budget, that meaningful dialogue is vital to ensure the most urgent needs of our people and businesses are being met.”

João Sousa, deputy director of the Institute, said: “The outlook for the public finances continues to be challenging, with slow growth translating into weak tax revenue forecasts.

“Despite recent positive revisions to UK growth, this is unlikely to translate into more fiscal headroom for the Chancellor.

“So, the spending envelope remains tight, which will put further pressure on the Scottish Government’s finances in the run-up to the Scottish Budget.

“There have been a number of spending commitments made by the Scottish Government in recent weeks that are likely to make the situation more challenging, including funding the council tax freeze.”