SCOTLAND is predicted to fall into a recession next year top economists have said, as they hit out at the "concerning" actions of the UK Government which will exacerbate the cost-of-living crisis. 

Researchers at the Fraser of Allander Institute (FAI) have revised their forecasts for the coming months and have predicted the economy will shrink north of the Border.

In their Economic Commentary for the third fiscal quarter of 2022, researchers said the economy would grow by 3.6% in 2022 before contracting by 0.6% in 2023.

The Scottish economy should grow by 0.8% in 2024, the FAI predicted.

They said this was because of “wider economic challenges” such as the dramatic rise in inflation and high fuel prices.

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The actions of Chancellor Kwasi Kwarteng – who triggered market chaos with his mini-budget – will make the cost-of-living crisis hit Scottish households harder, the paper warned.

How Tory policies will make the cost of living worse 

The foreword to the report said: “It will surprise no one to hear us say that these forecasts are very uncertain at the moment.

“It doesn’t seem in doubt though that there is a difficult winter ahead for the economy.

“It is in this challenging context that we saw the UK Government present its ‘fiscal event’ – although really a budget in all but name, given the scale of measures announced.

“This contained some of the most substantial tax policy changes seen in recent decades. Combined with recent announcements on the Energy Price Guarantee and Energy Bill Relief Scheme, this constitutes a huge change in the fiscal outlook.

“In this context, the decision not to involve the Office for Budget Responsibility (OBR) is concerning.

“The OBR plays an essential role in scrutinising tax and spend forecasts, assessing the likely impact of policy announcements on growth, the deficit and debt. Its exclusion from the process weakens transparency around the impacts of the proposals.

“This decision, and the overall approach to fund tax cuts from borrowing without any independent assessment of the consequences, has had clear implications in the markets.

“The weakening of the pound and the increases in government gilt rates are likely to exacerbate the cost pressures facing individuals and businesses in the months to come – as well as making it much more expensive for the government to borrow.”

The wider UK economy is predicted to fall into recession later this year.

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Professor Mairi Spowage, director of the FAI, said “The data we analyse in the Commentary today points to weakening demand in the economy as inflationary pressures pervade every aspect of our lives.

“Consumer confidence is starting to weaken with attitudes on the outlook looking pessimistic. This has led us to reduce our forecasts for 2023 and 2024. Our assumption is that there will likely be contractions in the economy during the second half of 2022 and into 2023 given wider economic conditions.

“In practice, this means Scotland is likely to enter a recession.”

Demand for a UK budget reversal 

The Scottish Government has said the development "reinforces the need" for the Tories to ditch their so-called growth plan. 

A spokesperson said: "Businesses and households will be concerned about the prospect of the UK entering recession. 

“This reinforces the need for the UK Government, which holds most of the key policy levers needed to address the issue, to take urgent action and further change course from its current budgetary proposals.

“The Scottish Government is working hard within its limited powers and finite budget to support people, business, public services and the economy during this cost of living crisis.

"Deputy First Minister John Swinney will outline further measures when he reports the outcome of the Emergency Budget Review later this month.”