The Scottish economy is on track to grow at its fastest rate since 2014 but Brexit could cause “substantial economic shock”, forecasters have warned.
The Fraser of Allander Institute says there will be growth of 1.4% in 2019, 1.5% in 2020 and 1.4% in 2021 – but only if the UK secures a “smooth” Brexit.
It warns that a disorderly withdrawal from the European Union remains the biggest threat to jobs, with a worst-case scenario the equivalent of making a further 100,000 Scottish people unemployed.
Institute director Graeme Roy said: “The Scottish economy has picked up after a challenging couple of years.
“In such uncertain times, however, any assessment of the economic outlook must come with major health warnings.
“While we don’t share the extremely negative view of some, we can say with some confidence that ‘no deal’ would be a substantial economic shock. Many businesses in Scotland are ill-prepared for such a disruptive change.
“Unfortunately, whatever happens over the coming weeks, it will not mark the end of the uncertainty.
“If parliament ultimately votes in favour of a Withdrawal Agreement the UK enters a near two-year transition process. The most challenging issue — a future UK-EU trade deal — is yet to be agreed.
“One of the frustrating things with the Brexit debate is that it has crowded out important discussions we should be having around key issues such as our ongoing weak productivity performance, the fact that around one million people in Scotland are classified as being in relative poverty — including one in four children — and how we respond to the challenges of an ageing population, climate change or automation.
“Indeed, we’ve heard very little debate about tomorrow’s Scottish budget. But the decisions (Finance Secretary Derek) Mr Mackay will set out will have important implications for the relative competitiveness of our economy and the future of public spending in Scotland.”
Speaking ahead of Tuesday’s budget, John Macintosh, tax partner at Deloitte, said: “At the recent UK Budget the Chancellor announced his intention to raise the higher rate income tax threshold to £50,000 from next April.
“Mr Mackay has indicated he will not match this for Scottish income tax bands, which apply to earnings and pensions for Scottish residents.
“As a result there will be a more noticeable difference between those paying income tax at the higher rate in Scotland and their neighbours in the rest of the UK.
“What impact this will have on investment and growth in Scotland is the subject of much debate. However, particularly as the country’s productivity growth continues to struggle, it is vital that Scotland is seen as an attractive place for people and businesses.
“We have an ageing population, a shrinking working age population and it is crucial for our future that we do not deter people from choosing to come to Scotland.”