‘Muted’ activity leads to downgrade of growth
Scotland’s economy will grow more slowly as a result of high interest rates, according to new research.
The Fraser of Allander Institute found activity was “muted” and confirmed the findings of the Scottish Chambers of Commerce that borrowing costs are weighing on investment decisions.
A weakening outlook means the institute now expects gross domestic product to increase by only 0.2% this year, compared with a prediction at the end of June of 0.5%. It left a projection of 0.7% for next year and 1.2% in 2025 unchanged.
Its latest forecasts take into account the prospect of energy prices rising again and interest rates remaining at current levels.
It said: “The drawn-out cost of living crisis looks far from over for businesses and consumers.”
Professor Mairi Spowage, the director of the institute, acknowledged that a recession, which many economists felt was inevitable this year, had been avoided.
She said: “Despite this though, it is clear that businesses are not feeling that conditions are great right now, with many delaying or cancelling investment due to the high interest rate environment and wider economic uncertainty.”
Angela Mitchell, the senior partner for Scotland at Deloitte, which sponsors the commentary, said: “The rate at which businesses are delaying or cancelling investments is high.”