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Forecasts of the Scottish economy [November 2011]

Allan, Grant (2011) Forecasts of the Scottish economy [November 2011]. Fraser of Allander Economic Commentary, 35 (2). pp. 22-33. ISSN 2046-5378

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In summary, we revise down our forecast for Scottish GVA growth in 2011 from 0.8% to 0.4%. This is due to rapidly falling household consumption indices, suggesting (for the UK, and by implication Scotland) a rapid falling off in consumer confidence since the summer months and a worsening global (particularly Euro zone) economic environment which has seen unprecedented declines in business activity and confidence during the second half of 2011. Continued high inflation, driven by commodity and energy price increases and temporary factors from recent changes to the VAT regime, will squeeze household incomes. Incomes themselves are seeing slower growth as inflation expectations remain anchored in the medium term, meaning real reductions in household income. Indeed the Bank of England warn against downside risks to meeting their 2% inflation target over the medium term as persisting weak domestic and external demand. Indicators suggest that 2012 will be a more difficult trading year, and our forecast has been revised down from 1.5% to 0.9%.