PwC Economic Outlook sees Scotland ahead of Wales, Northern Ireland and North-East of England

Scotland is set to outperform Wales, Northern Ireland and the North-East in terms of economic output, but with growth still below the UK average, according to PwC’s latest UK Economic Outlook report.

Scotland’s GDP is projected to grow by 1.8 per cent of GDP in 2016 – below the UK average of 2.2 per cent and far behind that of London at 3.1 per cent - but ahead of Wales (1.7 per cent), Northern Ireland (1.4 per cent), the North-East of England (1.7 per cent) and West Midlands (1.6 per cent). Scotland just lags behind Yorkshire (1.8 per cent) and the North-West and Midlands (both 1.9 per cent respectively).

Where Scotland performs strongly is in terms of GVA per head of population – the measure of the value of goods and services provided – where it is second only to the London and the South-east, the global accountancy firm said.

However areas of concern include Scotland having below average growth in employment and business formation as well as lower spending on Research and Development in future industries.

Nevertheless, in line with the rest of the UK, education, health, and business services will lead the way, and collectively could add over 2.5 million jobs by 2025.

However, the number of jobs in manufacturing could fall by a further 600,000 to around two million by 2025 as new automated technologies continue to boost productivity at the expense of employment and overseas competition remains fierce. Around 150,000 jobs could also be lost in public administration, defence and social security as austerity measures continue at least until 2020.

Lindsay Gardiner, regional chairman for PwC in Scotland, said: “It is not only promising to see Scotland continuing to grow but also to look ahead and see education and health set to be large employment sectors. These are areas where Scotland is well posed to be incredibly disruptive over the coming years and make a huge difference.

“You just have to look at the impact companies in Scotland are already having to see the potential of what is possible.

“In general the growth rate has been slow – in part due to weak consumer growth thanks to reduced spending – but exports and investment are holding their own for now.

“On that note, one area that shows no indication of slowing down is the freelance, self-employed sector, fuelled not only by the likes of Uber and AirBnB but as people find try out new employment opportunities and ways of working. This fresh thinking ties in with the aforementioned changes coming to the education, health and business sectors.

“An area of concern for Scotland though – as has been highlighted in this report and our previous work with the Fraser of Allander Institute – is the low spending on R&D. Now, this in part reflects the decline of manufacturing, where there has traditionally been high spending in R&D, but as we transition to a more digital and flexible economy, we need to accept that spending in R&D must be far higher in all sectors to encourage growth.”