Scotland could be in recession for much of this year, with a warning of a “difficult” outlook for households.
The Fraser of Allander Institute is forecasting that Scotland’s economy will shrink by 1% in 2023, before growing by 0.6% the following year.
The University of Strathclyde's think tank say there could be three quarters of contraction in 2023, spanning the first nine months of the year, before GDP growth returns in the final three months “bringing the end to a three quarter-long recession”.
After three consecutive months of double-digit inflation, the institute’s latest economic commentary said that this should fall, with inflation “perhaps getting down to 3-4% by the end of the year”.
The report said that while “some will be looking to take credit for this politically, the truth is that this was likely to happen anyway as we move past the first anniversary of the Russian invasion of Ukraine”.
But it also stressed: “Everyone has to remember that this does not mean that prices will start to come down anytime soon.”
Professor Mairi Spowage, director of the institute, stated: “We need to remember that this only means that prices stop rising quite as quickly, it does not mean that prices will start to fall.
“Things are likely to remain difficult for households throughout 2023.”
Her comments came as homeowners were warned that house prices could “decline significantly” this year.
The economic commentary said the increased cost of borrowing from rising interest rates, coupled with higher overall prices in the economy “are expected to act as a drag on demand in the housing market”.
As a result it stated that house prices are “set to decline significantly in Scotland in 2023”.
Meanwhile Douglas Farish, the office senior partner for Deloitte - which sponsors the economic commentary - said that with inflation remaining “close to multi-decade highs”, the Bank of England “will need more convincing evidence that inflation is beaten before calling time on further (interest) rate hikes”.
Overall, Spowage said that high inflation was “continuing to impact the outlook for the economy”.
She continued: “We still expect that there is likely to be contraction in growth during the first three quarters of 2023. This means that the economy will be smaller at the end of 2023 than at the start of the year.”
But she added that the outlook was “exceedingly uncertain”, adding that “there are a number of risks to the forecasts – many of which are to the downside”.
Farish said the latest report “captures the sense of uncertainty that persists as we enter 2023”.
He stated: “The UK economy is likely to enter recession this year, or at best stagnate, as elevated inflation squeezes demand and the impact of higher interest rates further weighs on activity.
“However, the economy showed unexpected resilience in the closing months of 2022 and by the standards of past recessions this is likely to be a shallow one, with growth expected to resume towards the end of the year.”
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