Poor but improving: economy slowly recovers in line with expectations
Economic data in early 2024 is showing that the economy is likely to be recovering hesitantly as expected, following the contractions in growth in the final part of 2023. This comes in the latest economic assessment from the Fraser of Allander Institute at Strathclyde University.
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 University of Strathclyde researchers have set out their latest forecasts for the Scottish Economy. The economists are forecasting growth of 0.6% in 2024, 1.1% in 2025 and 1.2% in 2026. These forecasts are unchanged from the previous assessment.
Bright spots for the UK as a whole can be seen in the inflation data, with the latest showing that Consumer Price Inflation fell to 3.4% in February, adding to hopes that interest rate cuts are likely to be coming over the course of 2024. January GDP data for the UK also shows growth after a poor end to 2024.
In Scotland, consumer sentiment has risen 4.8 points over the last quarter and 23 points over the year, indicating a significant improvement in sentiment across Scotland. However, most indicators remain in negative territory (i.e. more people being negative than positive about their circumstances) reflecting the challenging economic and financial pressures facing households.
The latest assessment from the Fraser of Allander includes a real-time earnings tracker, a focus on the implications of the changes to the national minimum wage being introduced in April 2024, and an analysis of the major public policy priorities for citizens in Scotland. These include health care and the NHS, inequality & poverty, housing and cost of living.
Professor Mairi Spowage, Director of the Institute, said “The mixed bag of economic news we are seeing for both Scotland and the UK at the moment could give reasons for either pessimism or optimism.
“On the one hand, the economy returning to growth in January and inflation falling faster than expected support our view that we will return to growth in 2024 overall. On the other hand, this growth is fragile and may be blown off course by events, particularly given geopolitical uncertainty this year.
“Our report chimes with other data released today by the Scottish Chambers of Commerce, which also shows businesses displaying confidence and resilience in the face of challenges.”
Douglas Farish, Head of Tax for Scotland at Deloitte, said “Although it’s encouraging that Scotland avoided a technical recession in the latter half of last year, this quarter’s Economic Commentary still paints an ambivalent view of the nation’s current economic position, with overall growth lacklustre in 2023.”
“The cost-of-living crisis continues to take a toll on household finances, and our latest State of the State report found that 60 per cent of the Scottish public believe the crisis will get worse still, albeit dropping from 75 per cent last year.“
The Institute’s quarterly commentary also includes analysis of implications of the UK Budget on 6th March for Scotland, including the second National Insurance cut, the impact of the overall tax burden, and the impact of UK Government spending decisions on the Scottish Government’s Budget.
João Sousa, Deputy Director of the Institute, said: “The lack of significant changes on resource and capital departmental spending further confirms the tough fiscal environment for the Scottish Government, and this will become apparent again when Deputy First Minister Shona Robison presents the Medium-Term Financial Strategy (MTFS) on 30 May.
“The 2023 MTFS had a £2.4 billion shortfall in funding built in for 2025-26, and with so much of the £1.5 billion shortfall in 2024-25 being filled by delaying projects, more difficult decisions are likely to be on the way.
“This is not to say that the Scottish Government will not receive any additional spending consequentials from the UK Budget on 6th March. £295m in Barnett consequentials was generated for 2024-25 from the chancellor’s announcements.”
This quarter’s commentary also includes one perspective:
- The potential impact of recent UK immigration policy announcements in Scotland, Hannah Randolph and Rebecca Kay
Authors
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.
Ben is an economist at the Fraser of Allander Institute working across a number of projects areas. He has a Masters in Economics from the University of Edinburgh, and a degree in Economics from the University of Strathclyde.
His main areas of focus are economic policy, social care and criminal justice in Scotland. Ben also co-edits the quarter Economic Commentary and has experience in business survey design and dissemination.
João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.
Emma is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute
Calum is an Associate Economist at the Fraser of Allander Institute (FAI) and a Researcher at the Centre for Inclusive Trade Policy (CITP). He specialises in economic modelling and trade, and holds an MSc in Economics from the University of Edinburgh.
Ciara is an Associate Economist at the Fraser of Allander Institute. She has a broad research experience across different areas including poverty and inequality, the voluntary sector, health, education, trade, and renewables and climate change. Ciara has an MSc in Applied Economics (Distinction) and a first-class BA Honour’s degree in Economics and Finance, both from the University of Strathclyde.
Brodie is a Knowledge Exchange Assistant at the Fraser of Allander Institute. She has recently completed an MSc in Applied Economics at the University of Strathclyde and has a first-class Honour’s degree in Economics and Politics from the University of Glasgow
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.