Scotland’s growth slows as consumer spending stalls and employment rate grows - PwC

Scotland is expected to deliver the lowest economic growth among the 12 UK regions in 2018 alongside Northern Ireland, according to PwC’s latest UK Economic Outlook.

However, after what could be a lacklustre year, Scotland’s outlook is forecast to pick up in 2019 with a 0.2 per cent boost in performance to 1.2 per cent - the highest percentile jump in the UK. Despite this, Scotland will continue to lag behind the UK average of 1.6 per cent.

A detailed comparison of the UK regions’ relative performance over the past two decades indicated that Scotland’s manufacturing contribution to the region’s gross value added (GVA) decreased by around 0.2 per cent between 2009 and 2016. The only region not to grow its manufacturing output, this figure is below the UK average increase of 0.6 per cent and lags behind top performers such as Wales (3.1 per cent) and the Midlands (2.8 per cent).

However, over the same period, Scotland had the third highest increase in professional, technical and scientific services’ contribution to GVA. Reflecting an increase of 0.7 per cent, this was only pipped by London (1.3 per cent) and the East of England (0.9 per cent) and was three times the growth shown in both Northern Ireland and Wales (0.2 per cent).

With entrepreneurship also an important factor in regional growth, Scotland’s business birth rate grew by 6.5 per cent from 2011 to 2016. This is ahead of Northern Ireland (5.2 per cent), but almost half of that shown in East of England (12.9 per cent).

Meanwhile, the Scottish labour market showed faster employment growth than six of the 12 UK regions during 2017, in line with the UK average of 0.6 per cent. And over the same period, Scotland recorded the highest house price growth of 7.7 per cent, the best performance in the UK and over three times that of London (2.5 per cent).

Lindsay Gardiner, regional chair at PwC in Scotland, said: “The latest UKEO presents a mixed picture for Scotland. While our economic performance is expected to pick up next year and we’ve enjoyed steady employment growth during 2017, the analysis also shows that Scotland is the only area of the UK not to grow its manufacturing contribution over the past two decades.

“The analysis of ONS data suggest that there is a positive relationship between relative regional GVA growth rates and education and skills, business formation rates and employment in professional and technical services. Regions reliant on public sector employment have grown more slowly, while employment alone is not a proxy for productivity or regional prosperity.”