£1 in every £20 could be lost
No deal Brexit risks plunging Scotland into recession
Business is wary of a disorderly Brexit
Leaving the European Union without a deal Brexit risks plunging Scotland into a deep recession, according to new research.
The worst-case scenario modelled by the Fraser of Allander Institute (FAI) is for a no-deal Brexit with no response from the government or Bank of England. While this outcome is described as “not very realistic”, it would cause a “significant contraction” in the Scottish economy of about 5.5% in the second half of 2019.
The FAI predicts a loss of more than one £1 in every £20 of output from the economy. This is in line with forecasts made by the Bank of England for the UK economy.
Despite the potential for loss, researchers expect the damage to be offset by action taken by governments and the Bank nd the FAI has set out a possible growth path for the Scottish economy which could see it outperform current estimates if Brexit is well-managed, business confidence returns and investment picks up.
The central forecast for the economy is slightly weaker than the last such report from the economics institute.
A second scenario examines a no-deal Brexit with a policy response, which predicts a contraction of 1.9%, leading to -0.2% growth in 2019, followed by -0.3% in 2020 and 1.3% in 2021.
The report says there is a need to address big structural changes coming to the economy, including demographic change, the scaling back of the oil and gas sector, automation and emerging economies around the world.
Professor Graeme Roy, director of the FAI, said: “Last week’s announcement to move the deadline for the UK’s departure from the EU to October has helped to reduce the imminent threat of a no-deal outcome impacting upon the Scottish economy.
“However, it has only kicked the can down the road with little evidence so far of UK policymakers being able to agree a compromise approach. The risks to the economy therefore remain high.
“Moreover the nature of the UK’s withdrawal from the EU is but one step in the process – the negotiations on the terms of the UK’s future relationship with the EU have yet to begin in earnest.
“But Brexit should not be the only focus of attention. One consequence of the Brexit debate is that it has left little room for discussion of the emerging structural challenges and opportunities our economy is facing.”
The first minister will address the Brexit challenge when she addresses the STUC conference in Dundee today.
She is expected to say nobody should pretend that the damage of Brexit can be fully mitigated and will warn that Brexit, in any form, will harm living standards and risk jobs.