Scottish economic growth 'to continue this year'

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The Scottish economy will continue to grow this year but it is no longer keeping pace with the UK as a whole, according to a leading forecaster.

The EY Scottish Item Club said the Scottish economy matched UK growth in 2014.

It is predicting growth of 2.2% north of the border this year - 0.2% higher than it originally forecast in December.

But Scotland is expected to undershoot UK growth by about 0.5% in 2015.

The forecaster said that pattern could "persist" for several years to come.

Senior economic advisor Dougie Adams said the "short-term stalling" of the Scottish economy, compared with the rest of the UK, stemmed from a combination of factors.

'Soft patch'

He said: "The downside of the oil price fall is much more marked for Scotland than for the rest of the UK; the Scottish consumer appears to be pausing for breath; and the high employment rate could point to emerging capacity constraints.

"Against this, improving household finances will buoy the overall growth rate and we believe this soft patch will give way to better growth on the back of the continuing UK recovery."

He added: "The pattern of GVA (gross value added) growth in Scotland trailing the UK is expected to persist over the next few years.

"This reflects the faster rate of population growth anticipated in the rest of the UK, the greater weight of the public sector in the Scottish economy and our estimates of long-standing relative trends in productivity growth at a sector level."

In its summer update, the item club predicts that professional and administrative services will be the fastest growing sector in 2015, expanding by more than 5%.

Service sectors expected to enjoy good growth in 2015 include retail and wholesaling, where expansion is forecast at more than 4% for this year. The recovery in accommodation and food services is expected to continue, with growth of 4.3%.

The item club also predicts financial services and real estate will see the weakest output growth among private services sectors in 2015.

Reflecting tight budgets in public services, the admin, defence and education sectors are projected to see falls in output - a trend that is expected to continue over the next two years.

Jobs forecast

An extra 25,000 jobs are forecast for 2015 - an increase of 0.9% - with 15,000-20,000 jobs projected to be added annually through the medium term.

The public sector and manufacturing are set to shed jobs, while financial services "tread water".

All other sectors are expected to increase employment.

EY Scotland partner Mark Harvey said: "Scotland's labour market has performed well and employment rates, particularly for women are at historically high levels.

"We need to ensure we continue to have spare capacity in the Scottish economy, to avoid a mismatch between the skills demanded and those available in the workforce."

On Friday, the Scottish government's State of the Economy report said that the "positive economic trends" seen last year, when annual growth of 2.7% was achieved, were expected to continue in 2015.

However, it warned that there could be "some uncertainty" ahead as a result of the "combined effects of the fall in oil prices and the muted trade environment in Europe" and elsewhere.

It concluded: "Notwithstanding the negative impacts of lower oil prices on some parts of the economy, the overall outlook remains positive with high employment levels and signs of wage growth, both of which are helping to boost household incomes."