Scots Consumer Spending Drives Economic Recovery, Institute Says

The Scottish economy will expand at a faster rate this year and next as households spend more, according to forecasts by the Fraser of Allander Institute, which also warned about the durability of the recovery.

Gross domestic product will increase by 1.3 percent this year, compared with an earlier forecast of 0.9 percent, the institute at Strathclyde University said. In 2014, GDP will increase by 1.8 percent compared with its June forecast of 1.6 percent. Its 2015 estimate is unchanged at 2.1 percent.

“The renewed growth is largely driven by an increase in household spending fueled by borrowing even when household debt remains high,” Brian Ashcroft, a professor at the institute, said in a statement. “But if real incomes continue to fall and asset prices, mainly housing, remain flat, it is difficult to see how such borrowing and spending can be sustained.”

The prospects for Scotland’s economy are at the heart of the debate over independence, the flagship policy of the Scottish National Party, which runs the semi-autonomous government in Edinburgh. A referendum on whether to leave the U.K. will be held on Sept. 18 next year.

The revised predictions for economic growth lag behind those for the U.K. The median forecast of 49 economists surveyed this month by Bloomberg is for GDP growth of 1.4 percent this year and 2.2 percent in 2014. Both forecasts were higher than in a similar survey last month.

Five Quarters

Still, Scotland is among the best-performing regions in the U.K. outside London and the southeast of England, and its economy has grown for five successive quarters compared with three for the U.K., the Fraser of Allander report said.

It sees the unemployment rate in Scotland falling to 6.9 percent by 2015 from an earlier forecast of 7 percent, after rising to 8.3 percent in 2014, down from 8.4 percent. This year, the jobless rate will be 7.6 percent, down from the institute’s June forecast of 7.9 percent.

Scotland’s unemployment rate was 7.3 percent in the three months to Aug. 31 compared with 7.7 percent for the U.K.

Retail sales rose 1.1 percent in Scotland in the third quarter and were up 2 percent from a year earlier, Scotland’s chief statistician reported today.

“These forecasts follow on from recent GDP and labor market statistics, which showed Scottish employment levels at a five-year high, and the economy continuing to grow over the year,” Finance Secretary John Swinney said today.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net

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