Scotland’s economy needs clarity on post-Brexit powers - Fraser of Allander Institute

In its latest Economic Commentary, published today, the University of Strathclyde-based independent research institute says the UK Government should provide greater clarity on the specific powers it envisages transferring to the Scottish Parliament after the UK leaves the bloc in March 2019.

While the latest data shows Scotland’s economy bounced back in the first three months of 2017 it comes on the back of an exceptionally weak last two years. Analysts say growth remains fragile and well below trend. And whilst employment is at a record high, household budgets continue to be squeezed by rising inflation eroding take-home pay.

Graeme Roy, Director of the FAI, said: “The latest leading indicators suggest the economy continues to recover, albeit at a relatively fragile pace.

“We believe Brexit has the potential to act as a long-term brake on Scotland’s growth potential and, to date, very little progress seems to have been made by the UK Government in its negotiations with the EU.

“One area the UK government could provide greater clarity on is over the specific powers they envisage being transferred to the Scottish Parliament post-Brexit. This would help enable preparatory discussions between business and the devolved administration.

“On balance our forecasts are based upon the assumption that a constructive deal between the UK and the EU is reached. Should this not occur, outcomes towards the lower-end of our forecast ranges are more likely.

John Macintosh, head of tax for Deloitte in Scotland, added: “Despite the considerable economic challenges, most sectors are actively looking to use technology to deliver gains in productivity, develop new products and services and grow into new markets.

“The challenges created by political uncertainty can’t be underestimated and there is work to do if we are to realise the latent potential in the Scottish economy. However we’re encouraged to see the opportunity laid out by this report – negotiating a path through the obstacles must be a key focus over the next few years. It should help raise productivity, which is vital to our long term economic success.”

Overall, the FAI’s forecast for growth in 2018 remains the same as in June at 1.4 per cent in 2018 while its forecast growth for 2019 has been revised upwards to 1.7 per cent.

Professor Roy added: “Given Scotland’s below-trend growth a focus – both by policymakers and business – on the long-term drivers of growth such as innovation, investment and skills, is more important than ever.”