Rising inflation to outstrip Scottish wage growth in 2017

Inflation – caused by the increasing cost of goods following sterling’s post-EU referendum slump - now sits at its highest level on BDO’s Inflation Index since mid-2013. The index climbed to 102.8 in October from 102.1 in the previous month, and is now almost three points above the long term trend of inflation at 100.

Increasing inflation is expected to continue in the coming months as the price of goods from overseas markets adjusts to the lower value of sterling. The sharp rise in inflation is set to outpace wage growth and will result in consumers having less to spend in the coming year.

In addition to ailing consumer spending power, the low value of sterling has knocked the confidence of Scottish businesses. BDO’s Output Index – which indicates how businesses expect to perform in the three months ahead – shrank to 96.6 from 96.9.

BDO’s Optimism Index which indicates how firms expect their order books to develop in the coming six months has also fallen to 98.5 from 99.5. Both optimism and output indices remain in growth territory sitting above 95 but are below the long-term average at 100.

The latest findings suggest that UK economic growth will continue to slow, as the government attempts to agree its strategy to leave the European Union.

Martin Gill, head of BDO LLP in Scotland, said: “Rapidly rising inflation is quickly going to hit the pockets of Scottish consumers, affect the profit margins of businesses and ultimately slow the growth of the economy.

“The Nissan and Hinkley announcements are a positive start post-Brexit for the UK as a whole, but the Scottish government needs to inject greater confidence back into the Scottish economy. We need a positive Autumn Statement and Scottish Government Budget in December that highlights immediate investment in infrastructure to help soften the blow to both consumers and businesses, and to encourage growth.”