The Scottish economy has reported 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 north east, south east, south west and west Midlands - all at 0.2% - it was slower than regions such as London and Northern Ireland, which led on growth, at 0.9% and 0.6% respectively.
The regional growth disparities highlight growth in sectors such as arts and entertainment, which have benefited London, while Scotland has seen a slower pace of growth due to exposure to sectors such as manufacturing and those impacted by supply chain issues.
Jason Morris, regional market leader at PwC Scotland, said: “While it’s encouraging to see the Scottish economy strengthening and a more positive outlook with regards to any potential recession in 2023, the differences in growth rates in the north versus the south still points to an ongoing productivity gap that must be addressed.
“Our outlook predicts that London will continue to lead growth in the UK, with mobility in highly-skilled sectors highlighted as a key factor.
“However, this - along with a predicted growth in retail and the service sector going forward - presents a real opportunity for Scotland, particularly given that our recent retail research showed Scotland to have among the slowest rate of store closures in the UK, and an increase in retail park outlets.
“That aside, there is still a real need to focus on training, development and education around the transference of skills in sectors like financial services and green energy – areas in which Scotland holds untold potential and that could hold the key to real and sustained economic growth.”
PwC’s UK economics team expects to see around 0.1% growth in 2023 and 1% growth in 2024, rising to 1.6% by end of 2025 as inflation pressures start to significantly ease over coming months.
The firm's modelling anticipates Consumer Price Index (CPI) inflation to return to target of 2% by the end of next year, although there is a risk price increases remain higher in food and services.
Despite this improved outlook, however, the report notes that the UK’s recovery is lagging behind its G7 peers. In particular the UK’s high levels of labour inactivity for over 50 year-olds is a key driver.
Barret Kupelian, senior economist at PwC, said: “Our analysis suggests the UK has very much 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 which could include future geo-political shocks, persistently higher inflation pressures and a weaker sterling.
“Cumulatively, we expect prices by the end of next year to be 20% higher than they were at the start of 2021, and this will continue to mean that businesses and households will need to reconfigure their approach to pricing and spending.”
The report forecasts inflation as measured by the CPI to begin to significantly decrease over coming months and return to the Bank of England’s target of 2% by the end of 2024.
Despite this, however, inflation may remain higher in certain key areas - such as food and services - and this may mean the cost of living pressures will continue to be experienced differently across households.
Meanwhile, more than half of small business leaders (58%) are expecting revenues to increase this quarter when compared to the first three months of 2023 – with an average revenue increase of 10% this quarter year-on-year.
This is according to the latest quarterly Barclays SME Barometer , which noted that businesses across the hospitality and leisure sector expect the upcoming bank holiday weekend to bring in an additional £180m of revenue.
This follows a successful first quarter of the year for UK SMEs, with more than half (56%) reporting a rise in revenue from the fourth quarter of 2022 and 60% reporting a year-on-year rise in revenue from the first quarter of 2022.
Similarly, small business optimism is at the highest level in a year, with 43% of SME leaders feeling positive about their future.
These figures are supported by data from Barclaycard Payments, which shows a rise of 1.4% in the value of payments to SMEs in the first quarter, compared to the same period last year.
Despite the increased optimism, wider concerns remain, as almost three quarters of SMEs (73%) stating that they are worried about the impact that the cost of energy will have on their business.
Just over two-fifths (41%) also said they will need to increase their prices to cover the costs, which will likely impact competitiveness.
Yet, many SMEs plan to plough investment back into their businesses, following the expected rise in revenues, with 39% of businesses planning to increase their number of employees over the next quarter; resulting in an average of eight new recruits per business.
Colin O’Flaherty, head of SME at Barclaycard, said: “It’s great to see that businesses plan to make the most of the Coronation weekend and are hoping to see increases in revenue – as consumers take advantage of the long weekend and enjoy eating and drinking out.
“It’s unsurprising that in the immediate term, there are still wider concerns for businesses, whether that’s energy prices or underlying cost of living issues.”
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