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Economy stronger than Institute’s earlier forecast

Mairi Spowage: outlook better than expected

Scotland’s economy has performed better than analysts at the Fraser of Allander Institute expected just a few months ago.

In the Deloitte-sponsored Economic Commentary, the Strathclyde University based researchers are forecasting growth of 0.5% in 2023, 0.7% in 2024 and 1.2% in 2025.

This is a significant revision from the Institute’s previous set of forecasts in March, which indicated that by now Scotland’s economy would be in a shallow recession.

The earlier forecast and a survey from the Scottish Chambers of Commerce were criticised at the time for being overly gloomy and out of step with anecdotal evidence of a more robust economy.

Despite the latest revision upwards, the Institute’s outlook for 2024 and 2025 has worsened, reflecting stubbornly-high inflation and the succession of interest rate rises from the Bank of England, with further rises likely, rather than peaking at 4.75% as expected in March.

Professor Mairi Spowage, director of the Institute, said: “We have improved our outlook for growth in 2023 due to outturn economic data being significantly better than was expected.

“However, the increased downward pressure on demand that is going to impact growth in 2024 and maybe beyond has led us to be less optimistic about growth next year and the year after.  

“Confounding our expectations, consumer spending has remained pretty resilient in the first quarter of the year. There is some evidence that this is being supported by increased borrowing, which may be a concern for the resilience of consumers as we move through the year.

“All of the evidence we have looked at in this edition would support that, in the main, businesses have been trying to absorb costs rather than pass them on to their customers. The signs are that more of them will have to pass through costs soon though which may lead to further price rises for consumers.”

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