The Scottish economy is reporting growth of 0.3% in the three months to February 2023, according to the latest PwC UK Economic Outlook.
While the rate of growth north of the border is greater than that of the North East, South East, South West and Western Midlands – all at 0.2% – it was slower than regions such as London and Northern Ireland, which led by 0.9 growth. % and 0.6% respectively.
The regional growth differentials highlight growth in sectors such as arts and entertainment, which benefited London, while Scotland saw a slower pace of growth due to exposure to sectors such as manufacturing and those affected by supply chain issues.
Jason Morris, regional market leader at PwC Scotland, said: “While it is encouraging to see the Scottish economy strengthening and a more positive outlook regarding a potential recession in 2023, the differences in growth rates in the north versus the south still point on an ongoing productivity gap that needs to be addressed.
“Our outlook predicts that London will continue to lead growth in the UK, with mobility in highly skilled sectors a key driver.
“However, this – together with predicted growth in the retail and services sectors going forward – presents a real opportunity for Scotland, especially given that our recent retail survey showed that Scotland has one of the slowest store closures in the UK, and a increase in retail parks.
“Apart from that, there is still a real need to focus on training, development and education around the transfer of skills in sectors such as financial services and green energy – areas where Scotland has unprecedented potential and that could be key to real and sustainable economic growth.” grow.”
PwC’s UK economic team expects growth of around 0.1% in 2023 and 1% in 2024, rising to 1.6% by the end of 2025 as inflationary pressures begin to ease significantly in the coming months.
The company’s modeling expects consumer price index (CPI) inflation to return to the target of 2% by the end of next year, though there is a risk that price increases will remain higher in food and services.
However, despite this improved outlook, the report notes that the UK’s recovery is lagging behind that of the G7. In particular, the high level of inactivity in the UK for the over-50s is a major driver.
Barret Kupelian, senior economist at PwC, said: “Our analysis suggests that the UK has largely passed through the eye of the inflationary storm compared to last year and is showing signs of a return to some sort of normality this year.
“But any recovery is subject to risks, including future geopolitical shocks, continued higher inflationary pressures and a weaker sterling.
“Cumulatively, we expect prices to be 20% higher by the end of next year than they were at the start of 2021, and this will continue to mean that businesses and households will have to reconfigure their approach to pricing and spending.”
The report predicts that inflation, as measured by the CPI, will begin to fall significantly in the coming months, returning to the Bank of England’s target of 2% by the end of 2024.
Despite this, inflation may remain higher in certain key areas – such as food and services – and this may mean that cost-of-living pressures will be perceived differently by households.
Meanwhile, more than half of small business leaders (58%) expect revenues to increase this quarter compared to the first three months of 2023 – with sales averaging 10% year-over-year growth this quarter.
This is according to the latest quarterly Barclays SME Barometer, which noted that businesses in the hospitality and leisure sector expect the upcoming bank holiday weekend to generate an additional £180 million in revenue.
This follows a successful first quarter of the year for UK SMEs, with more than half (56%) reporting revenue growth from Q4 2022 and 60% reporting year-on-year revenue growth from Q4 2022. first quarter of 2022. 2022.
Similarly, small business optimism is at its highest level in a year, with 43% of SMB leaders feeling positive about their future.
These figures are supported by data from Barclaycard Payments, which shows a 1.4% increase in the value of payments to SMEs in the first quarter, compared to the same period last year.
Despite the increased optimism, broader concerns remain, as nearly three-quarters of SMEs (73%) report being concerned about the impact energy costs will have on their business.
Just over two-fifths (41%) also said they will have to increase their prices to cover costs, which is likely to affect competitiveness.
Still, many SMEs plan to put investment back into their business following the expected increase in revenues, with 39% of companies planning to increase the number of employees in the next quarter; resulting in an average of eight new recruits per company.
Colin O’Flaherty, head of SME at Barclaycard, said: “It’s great to see businesses looking to make the most of the coronation weekend and hoping for an increase in revenue – as consumers take advantage of the long weekend and enjoy eating and drinking drinking out.
“Unsurprisingly, there are still bigger concerns for businesses in the near term, whether they be energy prices or underlying cost of living.”
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