Growth in the Scottish economy has been faltering in 2023, with a high interest rate environment and wider economic uncertainty leading to investment being delayed or cancelled, according to the Fraser of Allander Institute.

The independent think tank, based at the University of Strathclyde, has just released its latest Deloitte-sponsored Economic Commentary, which includes an assessment on key economy-related data.

Its economists are forecasting growth of 0.2% in 2023, 0.7% in 2024, and 1.2% in 2025. For 2023, this is down on the Institute’s previous set of forecasts in June, due to data for the year being much weaker than expected.

The most recent data on inflation, which held steady at 6.7% in September, points to the high inflationary and interest rate environment likely persisting for longer than previously thought.

Professor Mairi Spowage, the director of the Institute, said: “Growth in 2023 so far has presented a pretty mixed picture. While much better than we were expecting at the end of 2022 – with the predictions of recession proving thankfully unfounded.

“Despite this though, it is clear that businesses are not feeling that conditions are great right now, with many delaying or cancelling investment due to the high interest rate environment and wider economic uncertainty.”

Angela Mitchell, senior partner for Scotland at Deloitte, also commented: “This quarter’s commentary shows a thoroughly mixed outlook for our economy and, accordingly, for business and consumers.

“Notably, the rate at which businesses are delaying or cancelling investments is high. This chimes with findings from our latest CFO Survey, which found CFOs are focused on reducing leverage and capital expenditure is seen as a low priority.”

It also aligns with findings from the Scottish Chambers of Commerce, which DIGIT reported on yesterday. The Chambers’ survey further found that concern over interest rates has seen a significant increase, rising from 37% of Scots businesses last quarter to now half of firms, marking a five-year survey high.

Though, as Mitchell added, the Institute’s Commentary “encouragingly notes that there are signs that the investment hesitation is only temporary.”

Recommended reading

• Scots Economy Recovering Ahead of Rest of UK
• Report: More Investment Needed for Scots Business Growth
• CBI Scotland Urges Scots Gov to Adopt “Whole System” Net Zero Economy Approach

“The commentary raises the critical need for meaningful engagement and co-production between industry and government in enacting the kind of systemic change that is needed for vital sectors of our economy to flourish,” Mitchell also said.

“Ahead of the UK Government’s Autumn Statement, which will be followed closely by the Scottish Budget, that meaningful dialogue is vital to ensure the most urgent needs of our people and businesses are being met.”