Fraser of Allander Institute cuts economy growth forecast

A leading economic institute has cut its growth forecasts for Scotland.

The Fraser of Allander Institute said the economy will expand at a much slower rate than previously thought.

The institute's report concluded weak productivity and poor export performance, as well as the lower oil price, have stilted growth this year.

The institute also believe Scotland's economy is changing from the rest of the UK, with the construction sector showing growth.

The report said tightening public spending could still hurt the economy and it urges Chancellor George Osborne to rethink cuts to tax credits.

It says the Scottish Government should also look at ways of improving long term growth.

Divergent growth

The report states the will be a growth of Scottish GDP of 1.9% this year - a 0.6% drop from the June forecast - 2.2% next year and 2.5% in 2017.

The institute believes growth in Scotland has started to diverge from the rest of the UK.

Thanks to infrastructure spending, the construction industry is experiencing growth while the service sector has been weakened by oil prices.

The opposite is the case for the UK overall, with construction weakening and the service sector driving growth.

The institute warn austerity measures planned by the UK government and the continuing high levels of household debt "will be an increasing burden".

Brian Ashcroft, professor of economics at the University of Strathclyde, said: "With growth slowing right across the UK and especially in Scotland, now is the time for the Chancellor to rethink his cuts to tax credits and for the Bank of England to continue to hold rates.

"Scotland's weak productivity and poor export performance necessitates that the Scottish government tackle these issues more directly if it is to raise the long-term growth rate of Scotland's economy."