• Scottish manufacturing contribution to gross value added (GVA) is the lowest in the UK at -0.2% from 2009-2017. But has the third highest (0.7%) across professional, technical and scientific services
• At 7.7%, Scotland saw the highest house price growth over the past year – three times that of London at 2.5%.

Scotland is expected to deliver the lowest economic growth amongst the 12 UK regions in 2018 alongside Northern Ireland, according to PwC’s latest UK Economic Outlook.

However, after what could be a lacklustre year, Scotland’s outlook is forecast to pick up in 2019 with a 0.2% boost in performance from 1.0% to 1.2% – the highest percentile jump in the UK. Despite this, Scotland will continue to lag behind the UK average of 1.6%.

A detailed comparison of the UK regions’ relative performance over the past two decades indicated that Scotland’s manufacturing contribution to the region’s gross value added (GVA) decreased by around 0.2% between 2009 and 2016. The only region not to grow its manufacturing output, this figure is below the UK average increase of 0.6% and lags behind top performers such as Wales (3.1%) and the Midlands (2.8%).

However, over the same period, Scotland had the third highest increase in professional, technical and scientific services’ contribution to GVA. Reflecting an increase of 0.7%, this was only pipped by London (1.3%) and the East of England (0.9%) and was three times the growth shown in both Northern Ireland and Wales (0.2%).

With entrepreneurship also an important factor in regional growth, Scotland’s business birth rate grew by 6.5% from 2011 to 2016. This is ahead of Northern Ireland (5.2%), but almost half of that shown in East of England (12.9%).

Meanwhile, the Scottish labour market showed faster employment growth than six of the 12 UK regions during 2017, in line with the UK average of 0.6%.  And over the same period, Scotland recorded the highest house price growth of 7.7%, the best performance in the UK and over three times that of London (2.5%).

Lindsay Gardiner, regional chair at PwC in Scotland, said:

“The latest UKEO presents a mixed picture for Scotland. While our economic performance is expected to pick up next year and we’ve enjoyed steady employment growth during 2017, the analysis also shows that Scotland is the only area of the UK not to grow its manufacturing contribution over the past two decades.

“The analysis of ONS data suggest that there is a positive relationship between relative regional GVA growth rates and education and skills, business formation rates and employment in professional and technical services. Regions reliant on public sector employment have grown more slowly, while employment alone is not a proxy for productivity or regional prosperity.”

UK consumer and automation impacts

Real consumer spending growth is expected to slow from around 1.8% in 2017 to around 1.1% in 2018. But in 2019, this is projected to edge up to 1.3% and even has the potential to return to around 2% trend growth on average in the 2020s, assuming a reasonably favourable Brexit outcome and productivity gains from automation.

Housing and utilities will continue to consume a rising share of household budgets according to PwC’s analysis, reaching over 30% by 2030 compared to around 27% in 2017. Financial services and personal care are also likely to take a rising share of total consumer spending, while the share of spending on clothing, food, alcohol and tobacco, and transport will tend to decline in the long run.

John Hawksworth, chief economist at PwC, commented:

“Consumer spending accounts for more than two thirds of UK GDP, making it the most important driver of UK economic growth. But it has slowed significantly recently as higher inflation has squeezed consumer spending power and it looks set to remain sluggish in the short term, dampening overall GDP growth.

“Looking to the 2020s, however, growth could return to its long term trend rate of around 2% if the UK can negotiate a favourable future deal with the EU and automation boosts domestic productivity growth and holds down prices.

“The pattern of consumer spending will continue to evolve in the longer term, with our projections suggesting that housing and utilities will continue to eat up more of household budgets, while spending on other essentials like food and clothing tends to decline.”

Automation could reduce the number of retail jobs, but also benefit consumers by lowering prices according to new analysis by PwC. By the mid-2030s, over 40% of existing jobs in the UK retail and wholesale sector could potentially be displaced by automation. But this will also reduce prices for consumers, stimulating demand for other services and new jobs in where tasks are less automatable.

In the retail and wholesale sector, the impact of automation varies significantly dependent on the type of job workers do. PwC estimates that impacts could range from just 16% of managerial jobs being automated by the mid-2030s to over 50% of clerical jobs.

Technological innovations will also create new jobs, from online website designers and AI specialists to those involved in designing, supervising, repairing and maintaining robots. Additionally, PwC suggests efficiency improvements from automation will allow consumer prices to be kept lower than would otherwise be the case, leaving more money to be spent on other goods and services.