Economic experts warn against austerity

There are fears that the next Budget will put Scotland's recovery at serious risk


The chancellor risks Scotland’s economic recovery if he continues with his austerity agenda in July’s budget.

That’s the warning in the latest commentary by the University of Strathclyde’s Fraser of Allander Institute, produced in partnership with the accounting firm PwC.

In a note of optimism, it observes that growth in the Scottish economy ‘is being fuelled by a combination of capital investment – particularly infrastructure spending – and consumer spending.’

But as the chancellor puts his finishing touches to his emergency budget, due to be held on 8 July, the authors of the commentary warn of ‘threats to recovery’ which include ‘the UK government continuing, or even tightening, planned austerity measures in the forthcoming Budget’.

It notes also that the threat of a Greek exit from the Euro runs ‘the risk of contagion to other economies including Scotland’.

The Institute also warns abut the sustainability of recent growth, arguing that it is

“being threatened by a combination of unbalanced growth that relies unduly on household spending that depends mainly on rising and potentially unsustainable personal debt, and the UK’s overall weak trade performance.”

The Institute forecasts GDP growth of 2.5 per cent in 2015, 2.3 per cent in 2016 and 2.3 per cent in 2017, slightly less than its forecasts in March.

‘The downward adjustment’, it notes, ‘reflects the evidence of a slight slowing in the recovery in the first half of 2015’.

Commenting on the analysis, Brian Ashcroft, Emeritus Professor of economics at the University of Strathclyde, said:

“In his forthcoming Budget, it is crucial that the chancellor takes action to minimise the threats to the recovery by encouraging productivity and real-wage enhancing investment.

“He should also consider increased incentives to exporters and, at a minimum, a slowing in the pace of his fiscal consolidation plans.”

Meanwhile Paul Brewer, government and public sector partner for PwC in Scotland, warned about the forthcoming vote on the UK’s membership of the European Union:

“As 2016 and the referendum loom, so-called ‘Brexit’ will become a concern, particularly for the financial services sector.”

Ed Jacobs is a contributing editor to Left Foot Forward. Follow him on Twitter

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