PwC: Subdued Scottish growth amidst UK’s cautious economic optimism
Scotland’s economic outlook remains cautious, with growth anticipated to be subdued through 2023 and 2024, according to the latest PwC UK Economic Outlook report.
The Scottish economy is expected to see real gross value added (GVA) growth of just 0.3% in 2023, aligning with some regions but falling behind the stronger performances predicted for London and other UK regions. This modest growth in Scotland reflects challenges in the manufacturing sector, high energy costs, and the UK’s evolving trade relations with the EU.
Despite these regional disparities, the broader UK economy is set to avoid recession, with a forecasted growth of about 0.5% in real GDP for both this year and the next, which is an upward revision from earlier projections.
Meanwhile, the government is on track to meet its target to halve inflation, with the consumer price index (CPI) inflation expected to drop to under 5% by the year-end. However, inflation rates will likely remain above the Bank of England’s target into the next year.
Jason Morris, regional market leader at PwC Scotland, said: “Whilst we look to be ending the year in Scotland on a more subdued note in terms of economic growth in comparison to other regions across the UK, the rate of economic growth has remained steady throughout the year.
“Our recent Regional Productivity Tracker highlighted Scotland’s productivity and prowess in manufacturing which has, unfortunately, suffered supply chain issues over the past couple of years.
“However, these have now largely recovered, and we expect activity within the sector to pick up into 2024 as a result – particularly once relatively lower energy prices start to feed through to businesses within the sector – which is encouraging.”
The contraction of sectors related to oil and gas production in 2023 are also highlighted as a factor in Scotland’s lower than average growth.
Mr Morris continued: “The latest Economic Outlook, and the differing regional growth rates, serves as a reminder that there remains a need to close – or simply narrow – ongoing productivity gaps, by taking advantage of opportunities for growth and investing in businesses.
“Whilst some of the factors impacting economic growth in Scotland could potentially be attributed to a slowing in North Sea oil production, as a nation we have a central role to play in a fair energy transition. This is just one example of an opportunity for growth that we must continue to capitalise on going forward as well as our important role in energy security.”
Inflation across the UK has been a major concern but is projected to decline from the 11.1% peak last year to around 4.6% by the end of this year. This downward trend is primarily due to easing energy inflation, though a full return to the 2% target is not expected until 2025.
The PwC report also highlights the enduring heat of the labour market but contrasts it with the stagnant real earnings growth, which has not seen a net increase since 2006.