Outlook for 2023 now less certain given mixed economic picture
Uncertainty over the outlook for 2023 has increased in recent weeks, according to the Fraser of Allander Institute. The Institute’s quarterly Economic Commentary, which includes an assessment of all the latest key data on the UK and Scottish economies, is published today.
In the Deloitte-sponsored Economic Commentary, the Strathclyde researchers have set out their new forecasts for the Scottish Economy.
The economists are forecasting a contraction of -0.7% in 2023, before returning to annual growth in 2024 of 0.9%. This is a slight revision up from the Institute’s previous set of forecasts in February, reflecting the more positive than expected economic data at the beginning of 2023.
However, the economists at Strathclyde are also highlighting that uncertainties in the economy have increased, including the concerns that have surfaced in some parts of the global financial system. High inflation is also persisting, with higher-than-expected inflation data published in the last week.
Professor Mairi Spowage, Director of the Institute, said: “High inflation will be with us throughout 2023, and although we still expect it to come down as we compare to the much higher price levels of 2022, significant price rises, particularly in food, are continuing to put pressure on household budgets.
“So, while the approach of the Bank of England to interest rate rises may be softening, they are still showing that they will be prepared to raise rates further to deal with persistently high inflation. This measure will weigh on demand as we move through 2023.
“Better than expected economic data at the start of the year is contrasted with the concerns we are seeing in some parts of the global banking system. All of this means that the outlook is exceedingly uncertain, and there are a number of risks to the forecasts – many of which are to the downside.”
Angela Mitchell, Senior Partner for Deloitte in Scotland, said: “This quarter’s Commentary highlights the ongoing unpredictability of the economic climate in Scotland and the rest of the UK, and the need for businesses to seek out ways to manage and respond.
“The announcement of an Investment Zone in Scotland, made in the UK Spring Budget, could provide a real opportunity to bring together some of the great businesses, innovators and entrepreneurs in our country. Intended to complement Scotland’s two green freeport sites, this is one element of a widening grants and tax incentives landscape aimed at catalysing inclusive economic growth.
“At a time of political change in Scotland, with a newly-elected First Minister signifying one of the biggest developments in Scottish politics for a decade, it will be critical for businesses and government to work constructively to remain agile and effectively plan for the future.”
The Commentary also analyses some of the key headlines of the UK Spring Budget, which was presented on 15th March, focussing in particular on the impacts of the announcements for Scotland.
The Institute’s analysis covers the announcements on tax and childcare, the particular impacts on the Scotch Whisky industry, and discusses the interactions of disability benefit reforms with devolved powers in Scotland. They also discuss the very limited fiscal room the chancellor has compared to his fiscal rules.
Emma Congreve, Deputy Director of the Institute, said: “The outlook for the UK economy published by the Office for Budget Responsibility which accompanied the Budget was significantly more positive than in November. Two-thirds of the resultant fiscal wiggle room was used by the Chancellor for new announcements – although all of them were well trailed in advance.
“One thing that was disappointing was the lack of clarity on the annual impacts on the Scottish Budget, which did not become clear until some time later.
“The UK government’s response to climate change had limited coverage in the announcements. The UK government will be putting out more information this week on how they plan the meet their climate obligations, including their response to the Skidmore report.
“What is not clear is to what extent these announcements will be accompanied with new funding, given the constraints against the Chancellor’s fiscal rules.”
This quarter’s commentary also includes one perspective:
- An overview of social security in Scotland – Leila Roberts
Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.
Adam is an Economist Fellow at the FAI who works closely with FAI partners and specialises in business analysis. Adam's research typically involves an assessment of business strategies and policies on economic, societal and environmental impacts. Adam also leads the FAI's quarterly Scottish Business Monitor.
Find out more about Adam.
Kate is a Knowledge Exchange Assistant at the FAI working across a number of project areas. She is currently studying for her MSc in Economics at the University of Edinburgh and has a bachelor’s degree in Economics from the University of Strathclyde. Kate is also the Outreach Coordinator at the Women in Economics Initiative which aims to encourage equal opportunity and improve representation in the field.