Survey points to sluggish growth
Scotland to slow down but avoid recession
Scotland will avoid recession but growth will be below the UK average, at around 1.2% in 2017 and 1.1% in 2018, according to the latest projections.
Slower consumer spending growth and the drag on business investment is due to ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations, says PwC’s UK Economic Outlook.
While Scotland should avoid recession, it is at the lower end of the economic table over the coming two years. Wales will see growth of 1.3% and 1.2% while England will grow at 1.5% and 1.4% over 2017 and 2018. Only Northern Ireland fares worse than Scotland with growth of 1.1% and 0.9% consecutively.
UK economic growth held up better than expected in the six months following the Brexit vote but growth slowed in the first half of 2017 as inflation rose sharply, squeezing household spending power.
PwC expects consumer spending growth to continue to be moderate in 2017-18 as inflation eats into real spending power and wage growth remains subdued despite record employment rates.
Lindsay Gardiner, regional chair for PwC in Scotland, said: “While some may see concern at the fact Scotland and Northern Ireland are at the bottom in terms of GDP improvement, there is actually very little separating most of the UK. This year the best growth we expect any region – except for London – will see is 1.5% and it is 1.4% next year.
“Where concerns should perhaps be focused is around wage growth as many are offsetting limited growth through increasied borrowing – which may have a longer term impact via interest rate rises or employment downturn.
“It’s too early to speculate on how the Brexit talks are going to impact growth, however current exchange rates have some offsetting benefits for net exports.
“The main message we are discussing with businesses at the moment is to consider where Brexit may have an impact and to make contingency plans for a number of scenarios, particularly those who may face changes in customs tarrifs or employment challenges.”
Scottish housing market recovers but still lags behind UK
While Scotland fares comparatively close to the rest of the UK in terms of GDP, the picture is a little different when comparing the Scottish housing market to the rest of the UK over the coming years.
While the country has moved on from a dip of -0.2% in prices in 2016 to a projected 2.5% increase in 2017, many parts of the Scottish market have yet to recover to pre-crisis 2007 levels with Inverclyde, East Ayrshire, North Ayrshire and West Dunbartonshire all having seen the worst declines relative to pre-recession peaks.
Housing transactions, which tend to be more volatile than prices, are where the uncertainty caused by Brexit has manifested itself most strongly. Year-on-year the number of transactions have been down for twelve consecutive months.
The only Scottish area to be in the top ten of property price increases is the Shetland Islands with a change of 59% – higher than some parts of London.
Between now and 2020 PwC projects a slowdown in growth, with the average Scottish home to cost £160,000 – up from the 2016 figure of £139,000. The average residential property in the UK could be worth approximately £220,000 in 2017, £8,000 higher than in 2016 and could rise to over £300,000 by 2025.
Elsewhere in the UK, the East and Southern regions of England will continue to grow above the UK average, but Northern Ireland and the North East will continue to lag behind. While the average house price across the UK has grown by 17% since mid-2007, over a quarter of all local authorities are still below the 2007 peak.
Richard Snook, senior economist at PwC, said: “There is a huge disparity in how sub-regional housing markets have performed since the recession.
“The local authorities that have experienced the greatest falls in house prices since 2007 are all based in Northern Ireland, while London dominates biggest risers with all boroughs experiencing price growth of over 50%.”