Growth prospects next year ‘significantly worse’
Scotland’s economic growth prospects for next year have “significantly worsened” as consumers and businesses cut back on spending, says a key forecasting group.
The Fraser of Allander Institute at the University of Strathclyde now expects growth of 3.8% in 2022 and 0.5% in 2023 as the impacts of cost increases on consumers and businesses are likely to persist for longer than previously thought. This is a sharp downturn since the last set of forecasts in March.
The Deloitte-backed Economic Commentary points to consumers modifying their spending behaviour, with over half reporting that they are spending less on non-essentials. In addition, a third of consumers say they are spending less on food and other essentials.
It is not just food and fuel, however. The analysis shows that the costs of property, both rental and ownership, are also increasing significantly.
Price increases across the board mean that the impacts are being felt differently by different types of consumers. A younger demographic are more likely to say that property costs and public transport services have increased in price, whereas older age groups are more likely to say that food and fuel have gone up.
Director of the Institute, Professor Mairi Spowage, said: “The recovery from the pandemic is starting to falter.
“The analysis we have carried out for this quarter’s commentary, indicates that inflation will be higher and persist for longer than we thought in March.
“This has the potential to limit the economic recovery we hope to see during 2022 and 2023, as consumers cut back on discretionary spending, and businesses limit production due to input costs.
“These circumstances have led us to revise down our expectations for growth during 2023. Of course economic forecasting is a tricky business at the best of times, but forecasts are highly uncertain right now.”
Angela Mitchell, senior partner for Deloitte in Scotland, said: “While Scotland’s economic recovery was well underway in the first quarter of 2022, challenges for businesses are likely to remain throughout this year as a result of the cost-of-living pressures driven by both rising inflation and interest rates.”
Chambers call for action
Director General of the British Chambers of Commerce, Shevaun Haviland, is to urge the Government to take action to tackle the cost of doing business.
Ms Haviland will tell the BCC Global Annual Conference today that there was a ‘missed opportunity’ at the Spring Statement and will emphasise the need for cooperation over confrontation to avoid a summer of disruption further deepening the UK’s economic woes.
She will say that a long-term plan to solve skills shortages is needed but immediate action is also required.
“We are already seeing a drag on growth due to the lack of people in our labour market,” she will say.
“With four out of five firms telling us they’re finding it difficult to recruit, too many businesses are struggling to find the people they need to succeed and grow.
“In the short-term, Government can do more to help firms fill their gaps, including an urgent review of the Shortage Occupation List.”