Scottish economy set to grow but forecasters issue Brexit warning

The Fraser of Allander Institute said the Scottish economy will grow next year but warned of the impact of a no-deal Brexit.

The Scottish economy is on track to grow at its fastest rate since 2014 but a no-deal Brexit could cause "substantial economic shock", forecasters have warned.

The Fraser of Allander Institute predicted growth of 1.4% next year.

However, this will only be achieved if the UK secures a "smooth" Brexit, claimed the think tank.

The institute also said many firms remain "ill-prepared" for the consequences of a no-deal Brexit.

Institute director Graeme Roy said: "The Scottish economy has picked up after a challenging couple of years.

"In such uncertain times, however, any assessment of the economic outlook must come with major health warnings.

"While we don't share the extremely negative view of some, we can say with some confidence that 'no deal' would be a substantial economic shock. Many businesses in Scotland are ill-prepared for such a disruptive change.

"Unfortunately, whatever happens over the coming weeks, it will not mark the end of the uncertainty."

Brexit 'frustration'

He added: "One of the frustrating things with the Brexit debate is that it has crowded out important discussions we should be having around key issues such as our ongoing weak productivity performance, the fact that around one million people in Scotland are classified as being in relative poverty - including one in four children - and how we respond to the challenges of an ageing population, climate change or automation."

The Fraser of Allander Institute forecast states there will be growth of 1.4% next year, 1.5% in 2020 and 1.4% in 2021 - but only if the UK secures a "smooth" Brexit.

The think-tank has warned that a disorderly withdrawal from the European Union remains the biggest threat to jobs, with a worst-case scenario the equivalent of making a further 100,000 Scottish people unemployed.

The economic forecast comes ahead of Wednesday's Scottish budget where Finance Secretary Derek Mackay will present his proposed tax and spending proposals for 2019-20.

The minority SNP government needs the support of at least one other party if it is to pass its budget and one of the key issues will be the income tax levels for higher earners.

Finance Secretary Derek Mackay will set out his budget plans on Wednesday

John Macintosh, tax partner at Deloitte, said: "At the recent UK Budget the Chancellor announced his intention to raise the higher rate income tax threshold to £50,000 from next April.

"Mr Mackay has indicated he will not match this for Scottish income tax bands, which apply to earnings and pensions for Scottish residents.

"As a result there will be a more noticeable difference between those paying income tax at the higher rate in Scotland and their neighbours in the rest of the UK.

"What impact this will have on investment and growth in Scotland is the subject of much debate. However, particularly as the country's productivity growth continues to struggle, it is vital that Scotland is seen as an attractive place for people and businesses.

"We have an ageing population, a shrinking working age population and it is crucial for our future that we do not deter people from choosing to come to Scotland."