Scottish economy now lagging behind rest of UK

Scotland’s economy is lagging behind the rest of the UK and has an “unsustainable” reliance on major building projects propping up growth, a major report today warns.

By SCOTT MACNAB Monday, 7th December 2015, 12:00 am

Scotland's economic performance has been hit by the effects of lower oil prices on North Sea-related activity and a subsequent fall in oil and gas revenues. Picture: AFP/Getty

There are now concerns about “mounting problems” which has see growth has been revised down from 2.2 per cent to 1.9 per cent for 2015 and 1.8 per cent in 2016 – compared with UK growth of 2.5 per cent and 2.4 per cent over this period, according to Ernst and Young.

The Scottish Government is now facing opposition calls to address the situation which has seen the country’s all-important services sector underperforming its UK peer by a “wide margin”.

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Finance secretary John Swinney will set out his Budget for 2016-17 to MSPs later this month, with major cuts expected after the recent UK government spending review.

Major public construction projects like the Forth Crossing, Edinburgh to Glasgow rail improvements, as well as motorway upgrades made up 40 per cent of GDP in recent years but have created “lopsided growth” trend, according to the EY Scottish ITEM Club Forecast 2016.

It has questioned what will happen when these major public projects come to an end, and whether they will drive up Scotland’s productivity in the long term.

Dougie Adams, senior economic adviser to the EY Scottish ITEM Club, said: “Although Scotland has been impacted by the effects of lower oil prices on North Sea-related activity, weak growth in private services is a major cause of this year’s shortfall in comparison to UK growth.”

The 14.6 per cent growth in construction is described as “impressive” but potentially unsustainable and construction output is expected to pull back to just 3 per cent in 2016. This means a return to form in key areas such as professional and administrative services is needed to sustain economic growth. A “modest” increase of just 8,000 jobs, about 0.3 per cent, is expected throughout next year, the report adds.

The pace of the overall UK recovery looks like slowing, as prices begin rising again, with knock-on effects to Scottish producers serving markets throughout the rest of the UK.

Labour’s wealth creation spokeswoman Jackie Baillie said: “This report points to a worrying stalling of growth in the Scottish economy, with performance at a much lower level than in the rest of the UK.

“This is anything but a glowing report on the state of the Scottish economy, and with the decline in revenues from North Sea gas and oil, there are real challenges ahead. The SNP need to stop making excuses and get on with the task of creating the right conditions for economic growth.”

Scottish Conservative enterprise spokesman Murdo Fraser added the SNP was “quick to claim the credit” when the Scottish economy was growing faster than the UK as a whole.

Infrastructure secretary Keith Brown Keith Brown said public investment in building projects is one of the “main economic levers” the Scottish Government has it its disposal.