Economic commentary [March 2024]

Spowage, Mairi and Cooper, Benjamin and Sousa, Joao P. and Congreve, Emma and Crummey, Ciara and Gillan, Brodie and Milne, Katherine and Fox, Calum (2024) Economic commentary [March 2024]. Fraser of Allander Economic Commentary, 48 (1). ISSN 2046-5378

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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.”