Scottish growth forecast cut as cost of living bites
Scotland’s growth forecast for 2022 has been revised down because of rising costs on consumers and businesses – issues that are being exacerbated by uncertainties caused by the war in Ukraine, inflation and, potentially, the extension of some Covid restrictions.
The findings of the latest quarterly Economic Commentary from the Fraser of Allander Institute are consistent with surveys such as the EY Item Club which earlier this week revised down its forecast for the UK for the same reasons.
The Deloitte-sponsored FoAI Economic Commentary, forecasts Scottish growth of 3.5% in 2022 – down from 4.7%. The forecast is 1.5% in 2023 and 1.4% in 2024. The outlook has significantly worsened for 2022 since the last set of forecasts in December 2021.
Two years on from the first lockdown the latest data shows that the Scottish economy has just recovered to pre-pandemic levels.
However, this overall picture conceals continuing difficulties in the hospitality and leisure sectors which are still operating significantly below pre-COVID-19 levels of output. They fear that an extended period of customers being required to wear face coverings will hit trade.
The analysis in this quarter’s Commentary shows that consumers are starting to feel the pinch, with many noticing increases in their food shopping, their energy bills, and the cost of fuel. This is before the expected increases in April as the energy price cap moves up still further. VAT will rise to 20% for those who have enjoyed a lower rate.
Director of the Institute, Professor Mairi Spowage, said: “The measures introduced by the Chancellor’s Spring Statement are not likely to be sufficiently targeted to help those on the lowest incomes. Consumers and businesses are going to feel the squeeze in the coming months, if they haven’t already, with soaring energy and food bills.
“This has the potential to limit the economic recovery we hope to see during 2022, as consumers cut back on discretionary spending, and even perhaps businesses limit production due to input costs.
“These circumstances have led us to revise down our expectations for growth during 2022. Of course – and we feel like we have said this a lot over the last two years – economic forecasting is a tricky business at the best of times, but forecasts are highly uncertain right now.”
Separately, business confidence in Scotland fell by 18 percentage points to 17 per cent in March, according to the Bank of Scotland Business Barometer.
It said concerns over inflation and the prospect of costs rising further had dented optimism.