Bad Brexit Deal Could See Scotland's Economy 'Take a Sharp Turn for the Worse'

A report from the Fraser of Allander Institute at Strathclyde University has said Scotland seems to be "stuck in a cycle of weak growth," and a bad Brexit deal could push it into full-blow recession. The Scottish National Party (SNP) said the report highlighted how important it was for the British government to keep access to the single market.

SNP: "the fundamentals of our economy are strong"

Respected experts Fraser of Allander Institute
⬇️⬇️⬇️ pic.twitter.com/5uyEhSH4su

— Paul McKay (@pauljmckay) 29 June 2017

"With the Scottish economy shrinking in the final three months of 2016, Scotland is just one data release away from re-entering recession," said the Strathclyde University think tank in their latest economy commentary.

Brexit "cast a shadow over the outlook," said the report.

Earlier this week Scotland's First Minister Nicola Sturgeon announced she was putting back plans for a second independence referendum until after the outcome of the Brexit negotiations.

They forecast the Scottish economy would pick up, growing by 1.2 percent in 2017, 1.4 percent next year, and 1.6 percent in 2019.

The latest Fraser Economic Commentary was released this morning, link here: https://t.co/Kua8oUfo0S

— The FAI (@Strath_FAI) June 29, 2017​

The institute said Scotland's recent economic woes could no longer be simply explained just by the downturn in North Sea oil production or even by uncertainty about Brexit.

"Scotland's economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures," said the report.

With the Scottish government's budget now much more dependent on taxes raised in Scotland, "getting the economy moving again must be a priority for everyone with a stake in Scotland's long-term prosperity," said the report.

A robust #FMQs & tricky for Nicola Sturgeon, esp on education. But I'm amazed Ruth Davidson didn't lead with Fraser of Allander

— Tom Freeman (@HolyroodTom) 29 June 2017

​Next week's Scottish GDP figures for the first quarter of 2017 will confirm whether Scotland is officially in recession.

"On balance, it is likely to be a close run thing," the report said.

In the final three months of 2016 manufacturing and construction work fell and there was no growth in Scotland's service economy.

6 bullet points on the latest Fraser Commentary https://t.co/taCyEOYNDd pic.twitter.com/nkuwZnneG9

— The FAI (@Strath_FAI) June 29, 2017​

Pretty much the only bright spot in the report was increases in tourism revenues and food and drink sales, which have both benefited from the low value of the pound.

"On balance, our forecast is that growth will return in 2017, with tentative signs of a more positive outlook for Scotland's oil and gas sector and improving order books across Scottish businesses," said Fraser of Allander director, Graeme Roy.

"In the current climate sentiment can change quickly. Should the upcoming Brexit negotiations go badly, or the UK economy slows down more quickly than anticipated, then Scotland's economic prospects could take a sharp turn for the worse," he added.

Scotland's Economy Secretary Keith Brown played down the negative aspects of the report.

​"While challenges remain, the report also confirms emerging signs of confidence returning to the oil and gas sector, building on recent reports from Bank of Scotland and Aberdeen and Grampian Chamber of Commerce," Brown said.

"Scotland's unemployment rate is at record low levels of 4% — equalling the previous all-time low — and is also at its lowest rate since the recession, and much lower than Fraser of Allander's post-Brexit forecast of 7% for this year.

"To avert the 'Brexit negotiations going badly,' as the report states, the UK government must work with us and the other devolved administrations with the aim of keeping the UK and Scotland in the single market and customs union," Brown added.