The Scottish economy will contract by 0.7% this year, before returning to annual growth in 2024 of 0.9%, according to the latest Deloitte sponsored Fraser of Allander Institute commentary.

This figures are a slight revision upwards from the Institute’s previous set of forecasts in February, reflecting the more positive than expected economic data at the beginning of 2023.

However, the economists at Strathclyde are also highlighting that uncertainties in the economy have increased, including the concerns that have surfaced in some parts of the global financial system. High inflation is also persisting, with higher-than-expected inflation data published in the last week.

Professor Mairi Spowage, director of the Institute, said: “High inflation will be with us throughout 2023, and although we still expect it to come down as we compare to the much higher price levels of 2022, significant price rises, particularly in food, are continuing to put pressure on household budgets.

“So, while the approach of the Bank of England to interest rate rises may be softening, they are still showing that they will be prepared to raise rates further to deal with persistently high inflation. This measure will weigh on demand as we move through 2023.

“Better than expected economic data at the start of the year is contrasted with the concerns we are seeing in some parts of the global banking system. All of this means that the outlook is exceedingly uncertain, and there are a number of risks to the forecasts – many of which are to the downside.”

Angela Mitchell, senior partner for Deloitte in Scotland, said: “This quarter’s Commentary highlights the ongoing unpredictability of the economic climate in Scotland and the rest of the UK, and the need for businesses to seek out ways to manage and respond.

“The announcement of an Investment Zone in Scotland, made in the UK Spring Budget, could provide a real opportunity to bring together some of the great businesses, innovators and entrepreneurs in our country.

“Intended to complement Scotland’s two green freeport sites, this is one element of a widening grants and tax incentives landscape aimed at catalysing inclusive economic growth.

“At a time of political change in Scotland, with a newly-elected First Minister signifying one of the biggest developments in Scottish politics for a decade, it will be critical for businesses and government to work constructively to remain agile and effectively plan for the future.”