SCOTLAND’S economic growth will trail UK-wide expansion this year and in 2019, but by significantly less than in 2017, accountancy firm PricewaterhouseCoopers forecasts.
PwC, publishing its latest economic forecasts today, highlights the dampening impact of Brexit-related uncertainty on UK business investment and on the financial sector.
Chief economist John Hawksworth underlined the negative effect of uncertainty around Brexit on the financial sector in London.
Highlighting moves by financial companies to “safeguard themselves against different scenarios” relating to Brexit, he added: “I haven’t studied the Edinburgh situation as much as the London situation. Given Edinburgh is also a major financial centre, I would assume there are similar effects.”
He believed some activities had been moved by UK financial sector companies to other European Union countries already on a “small scale”.
Mr Hawksworth added that such shifts of activities could “happen more significantly” next year.
On the assumption the UK avoids a “hard Brexit”, PwC forecasts the country’s economy will grow at a “modest” pace of 1.3 per cent this year and 1.6% in 2019, citing political and economic uncertainty regarding the outcome of the European Union exit negotiations and subdued real consumer spending growth. A hard Brexit scenario is one in which the UK leaves the EU next March without any trade or transitional agreement and therefore reverts to World Trade Organisation rules.
Asked whether he believed the risks of a hard Brexit had risen recently, or remained the same, Mr Hawksworth replied: “It is more about politics than economics so I think I will pass on that.”
In its latest economic outlook report, PwC says: “This moderate growth outlook is despite our assumption here that the Brexit negotiations will proceed reasonably smoothly, and therefore that the UK will avoid an extreme ‘hard Brexit’ where it falls out of the EU in March 2019 without any trade deal or transitional arrangement, so reverting immediately to WTO rules. But clearly this is a key downside risk.”
PwC forecasts the Scottish economy will grow by 1% this year, and by 1.3% in 2019.
Mr Hawksworth noted Scottish gross domestic product in the first quarter was up 0.8% on the same period of 2017. He observed UK GDP growth had, over the same timeframe, been greater at 1.2%.
Comparing the Scottish growth forecasts with those for the UK as a whole, in the context of respective year-on-year expansion in the first quarter, Mr Hawksworth said: “It is broadly similar, relatively…
“Construction has obviously been very weak over the last year or so, both in Scotland and the UK. There have been some areas like commercial construction that are affected by Brexit uncertainty – some big-ticket [things].”
Asked about issues affecting the Scottish economy, Mr Hawksworth replied: “I think there are probably similar factors to the UK [as a whole] – uncertainty around Brexit dampening business investment and also having some adverse impact on the financial services sector.”
Scotland, hit hard in recent years by the global crude price downturn as well as overall UK economic weakness, recorded GDP growth of 0.8% in 2017. The UK as a whole grew by 1.7% last year. There have been signs in various economic indicators that the dampening impact of the oil and gas sector downturn on the overall Scottish economy has subsided in recent months, amid firmer crude prices.
PwC estimates the rise of artificial intelligence will create a net gain of nearly 15,000 jobs in Scotland by 2037.
It predicts the deployment of robotics, drones, driverless vehicles and other digital innovations aimed at "smart automation" will lead to the displacement of 544,000 jobs and the creation of 558,000 posts.
Mr Hawksworth noted jobs were expected to be displaced in manufacturing and, in the context of driverless vehicles, in the transportation sector.
However, he highlighted potential for extra jobs in the healthcare sector as automation led to higher economic growth and tax revenues and greater government funding for the National Health Service.
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