Investment held back

Brexit wipes £3bn from Scottish economy say economists

Brexit protest and march

Demonstrations question the value of Britain’s withdrawal (pic: Terry Murden)

Brexit uncertainty has wiped about £3 billion from the Scottish economy as investors delay decisions, according to new research.

It has left the economy 2% smaller than it would have been, says the Fraser of Allander Institute.

However, it is possible that much of this investment will be releases once the fog clears.

The FAI report coincides with analysis from the GMB Union claiming that the Brexit deal could put up to 329,400 jobs in Scotland at risk.

In its latest Economic Commentary, supported by Deloitte, the University of Strathclyde-based FAI points out that even ratification of the deal in the coming weeks will not mark the end of the challenges facing Scottish businesses. 

Professor Graeme Roy, director of the Institute, said: “There are signs that Boris Johnson may be able to secure safe passage of his new deal with the EU, albeit perhaps not by the 31 October deadline, so that the UK will finally leave the EU three-and-half years from the Referendum.

“Securing a deal will help lift some of the fog of uncertainty that has hung over the Scottish economy in recent times. As a result, in the short-run, the economic outlook should improve.

“By avoiding a ‘no deal’ outcome, and all that would entail, growth is likely to move ahead of previous forecasts.

“However the nature of the ‘deal’, and in particular the intention to move to one of the ‘hardest’ forms of Brexit means that the long-term challenges for the Scottish and UK economies will be considerable. 

Mairi Spowage, deputy director of the Institute, said: “The recent Brexit uncertainty has clearly had a negative impact on the Scottish economy. Investment remains well below trend and as a result growth continues to be sluggish. 

“We estimate that the Scottish economy is around 2%, or £3 billion, smaller than it otherwise would have been.

“Some of this hit to Scotland’s economy may be clawed back as businesses see a clearer path ahead. But nothing within this Brexit process can be taken for granted.

“And whilst a deal to leave may soon be agreed, the nature of the UK’s future relationship with the EU is far from certain. Debates over Scotland’s future constitutional status are likely to intensify.”

John Macintosh, tax partner at Deloitte, said: “Scotland is renowned for its resilience and with careful planning, there are opportunities for businesses to rise to the challenges and adapt to change.”

The Institute’s central forecast, based on an orderly departure at some point in 2019, predicts growth of 1.0% in 2019, 1.2% for 2020, and 1.3% for 2021.

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