Economic forecaster predicts 'sharp slowdown' over Brexit

Scotland faces a sharp slowdown in growth and higher unemployment over the next few years as a direct result of the Brexit vote, a leading economic forecaster has warned.

The University of Strathclyde's Fraser of Allander Institute said a prolonged period of "economic uncertainty and financial volatility" was unavoidable.

It warned this would carry risks for investment, household incomes and jobs.

The institute has revised down growth forecasts it made before the EU vote.

It now expects growth of just 0.9% in 2016 (down by 0.5%), 0.5% in 2017 (down by 1.4%), and 0.7% in 2018 (down by 1.3%).

Its report said that while growth was likely to remain positive on an annual basis, a short "technical recession" - two consecutive quarters of falling output - was "highly possible" within the next three years.

Unemployment

The Fraser of Allander also forecast that Scotland's unemployment rate would rise to 6.5% this year, 7% in 2017 and 6.8% in 2018. That compares with the most recent official figure of 5.5%.

The institute also argued trade and investment prospects would be damaged by the decision to leave the EU.

It said it expected growth to slow as businesses and investors adjusted.

The report maintained that exiting the EU was "materially different" from the financial crisis of 2008 and 2009, when "the global systemic effects of the crisis were much larger".

But it warned that the costs of the UK leaving the EU on Scotland's economy were "likely to be structural and long-lasting, with any benefits at best still undetermined and highly uncertain".

'Much more pessimistic'

Fraser of Allander Institute director Graeme Roy said: "Following the referendum result we predict a significant slowing in the rate of growth in the Scottish economy.

"The combination of economic and policy uncertainty, coupled with the longer-term structural consequences for trade and investment from leaving the EU, make the outlook much more pessimistic than before.

"Given Scotland's fragile economic performance over the past 18 months, the impact of the EU referendum result is exactly what the Scottish economy did not need.

"The top priority has to be retaining access to the single market which will help mitigate some of the most damaging effects on investment, trade, productivity and jobs.

"Whether or not this can be achieved without freedom of movement is highly uncertain."

A survey conducted by the Fraser of Allander earlier this month found more than 60% of Scottish firms believed Brexit would have a "negative impact" on them.

However, the institute said there was little evidence of companies cancelling investment or recruitment outright.