Growth in the economy has been faltering over 2023, with a high interest rate environment and wider economic uncertainty leading to investment being delayed or cancelled, according to the Fraser of Allander Institute.
Its quarterly Economic Commentary, sponsored by Deloitte, sees the University of Strathclyde economists forecasting growth of 0.2% in 2023, 0.7% in 2024 and 1.2% in 2025.
For 2023, this is a revision down from the institute’s previous set of forecasts in June, as data for the year to date has been much weaker than expected.
The forecasts for 2024 and 2025 have not changed since June.
The most recent data on inflation, which held steady at 6.7% in September, shows that the high inflationary and interest rate environment is likely to persist for longer than previously thought – therefore it is likely that there are more risks to the downside for these forecast numbers than when they were presented in June.
Professor Mairi Spowage, director of the institute, said: “Growth in 2023 so far has presented a pretty mixed picture.
“While much better than we were expecting at the end of 2022 – with the predictions of recession proving thankfully unfounded – 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, senior partner for Scotland at Deloitte, agreed that the rate at which businesses are delaying or cancelling investments is high.
“This chimes with findings from our latest CFO Survey, which found chief financial officers are focused on reducing leverage and capital expenditure is seen as a low priority.
“However, the commentary encouragingly notes that there are signs that the investment hesitation is only temporary.”
The commentary also looked ahead to the Autumn Statement, which will be presented by the Chancellor on 22 November and will broadly set the spending envelope for the Scottish Budget on 19 December.
João Sousa, deputy director of the institute, added: “The outlook for the public finances continues to be challenging, with slow growth translating into weak tax revenue forecasts.
“Despite recent positive revisions to UK growth, this is unlikely to translate into more fiscal headroom for the Chancellor.
“So, the spending envelope remains tight, which will put further pressure on the Scottish Government’s finances in the run-up to the Scottish Budget,“ he continued. “There have been a number of spending commitments made by the Scottish Government in recent weeks that are likely to make the situation more challenging, including funding the council tax freeze.”
Don’t miss the latest headlines with our twice-daily newsletter – sign up here for free.
