SCOTLAND’S economic growth is set to accelerate this year with boosts seen across several industries, a forecast has suggested.
EY ITEM Club predicts the Scottish economy should grow by 0.7% in 2024, marking a “considerable improvement” compared to 2023.
The think tank also points out that despite weak economic activity, the labour market “remains resilient” but is facing issues with recruitment.
And, it set out the significant impact that Brexit has had on Scotland’s manufacturing sector.
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The recovery of household finances should “gather pace” across the year, it adds.
Scotland will be just behind the overall UK’s economic growth, which is set to see a boost of 0.8%, up from the 0.3% predicted last year.
“Scotland’s economy is set to gain momentum this year with the prospect of interest rate cuts from May onwards, a continuing fall in inflation, and decreasing energy prices,” the report reads.
“Continued growth in pay and easing pressure on household finances should also boost consumer sentiment.”
EY ITEM Club also projects that going forward Scotland’s economy will continue to grow - to 1.4% in 2025 and 1.6% in 2026 and 2027.
With unemployment remaining low in Scotland’s labour market, the report adds that it forecasts “growth across most sectors” in 2025.
In particular “human health and social work”, including the NHS, agriculture, forestry and fishing, and the energy industry, will see a boost in 2024, with energy seeing a further growth in 2025.
Administrative industries and wholesale and retail trade will also see growth in 2024 with a further improvement in 2025.
“It is expected that, over the longer term, employment prospects will be dampened by weak demographic growth, particularly compared to the rest of the UK,” it said.
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The report also added that “businesses continue to report recruitment difficulties, with high rates of inactivity and economic uncertainty limiting the supply of candidates”.
However, when it comes to manufacturing in Scotland, the report said the outlook was “somewhat downbeat”, particularly for the food and drink sector as household incomes remain squeezed during the cost of living crisis.
It adds that the scope to bolster manufacturing exports is “slim” as “difficult international conditions are set to prevail in the near term, with Scotland’s major trading partners themselves suffering from weak activity and growth”.
Looking to the eurozone, which accounts for 60% of Scotland’s exports, manufacturing is set to remain flat this year.
“Reduced access to EU markets and non-tariff barriers following Brexit are expected to impact medium to long-term growth for many parts of the Scottish manufacturing sector,” the forecast adds.
And, despite the UK Government signing off on scores of new oil and gas licences in the North Sea and a renewed focus on energy security, the report sets out that this will provide only a “short-term boost” to production.
On the oil and gas sector, the think tank adds: “Nonetheless, we estimate that GVA [Gross Value Added] in the sector fell by 7.5% in 2023 and with the government committed to reducing carbon emissions, we expect the mining & quarrying sector to return to its structural decline and forecast output to fall by 2.2% in 2025.”
Ally Scott, EY’s managing partner for Scotland, said: “Although economic growth has been relatively flat, Scotland is slowly moving in the right direction with a brighter outlook expected for sectors such as information and communication, energy, and consumer-facing services.”
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He added that employment growth is behind the UK and said the “incremental increases in income tax” are now a “major concern” for employers seeking to retain staff.
“If these growth sectors hold the careers of the future for Scotland, then we need an environment that encourages investment and promotes business, not one that creates barriers for growth or impacts competitiveness,” Scott said.
The think tank set out that the proposed income tax increases will mean that a Scottish taxpayer earning £125,000 would pay £5221 more tax in Scotland than if they were working elsewhere in the UK.
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