Economic forecaster urges clarity on post-Brexit powers

Uncertainty over Brexit continues to loom over Scotland's economic recovery, according to a leading forecaster.

The Fraser of Allander Institute (FAI) said indicators suggested the economy was improving following "an exceptionally weak last two years".

But it warned that the Brexit negotiations remained the "greatest cloud on the immediate horizon".

It said the economy faced severe risks if the UK government could not reach a deal with the EU.

The report also called for UK ministers to clarify which powers they envisage will be transferred to Holyrood after Brexit.

It said this would help enable "preparatory discussions" to take place between business and the devolved administrations.

The UK government and the devolved administrations are currently locked in a dispute over what should happen to powers in areas such as fishing and farming which are not currently reserved to Westminster, but which are exercised in Brussels.

In its latest quarterly economic commentary, the institute said its forecasts for Scottish growth remained broadly the same as its previous report in June. It now predicts growth of 1.2% this year, 1.4% next year and 1.7% in 2019.

But it warned: "On balance, our forecasts are based upon the assumption that a constructive deal between the UK and the EU is reached.

"Should this not occur, outcomes toward the lower end of our forecast range are more likely."

The report argued that the immediate concern facing many businesses was the potential for the exit process "to go awry".

It said: "We are now 15 months on from the referendum with a deal likely to be needed in just over a year's time.

"But very little progress - if any - seems to have been made on the key elements of the UK's terms of exit.

"'No deal' would clearly not be in the interests of either the UK or the EU. The potential risks from such a 'cliff-edge' scenario, with companies finding themselves outside the single market and customs union, would be severe indeed."

The report added: "Whilst a detailed agreement will not be reached until the end of the process, the longer we wait for evidence that serious progress is being made, the greater the likelihood that companies and investors will start to plan for the worst."

Meanwhile, the Federation of Small Businesses (FSB) has called for measures to "cushion" the impact of Brexit on Scottish firms,

It follows an FSB survey that showed a sharp fall in business confidence across the UK in the last quarter, amid rising costs.

FSB Scottish policy convener Andy Willox said: "It is critical that agreement with the EU27 is now reached on issues such as the length and nature of a transitional deal.

"We would argue that a three-year interim period would be sensible, alongside a comprehensive free trade agreement. Further, EU citizens working in or running businesses in Scotland must have the right to remain in the country."

SNP MSP Mairi Gougeon, who sits on Holyrood's Europe Committee, said the Fraser of Allander and FSB reports underlined "just how damaging the Tories' Brexit plans were to Scotland's economy".

She added: "With both the FSB and Fraser of Allander Institute telling us that businesses are losing confidence and being harmed by rising prices and a weak pound, and with Brexit uncertainty continuing to loom over our economy, it is clear that the Tories must take action now to change course and end their obsession with a hard Brexit.

"There is nothing at all to be gained from tearing us out of the single market and customs union, but everything to lose.

"The Tories must wake up to the reality of their disastrous Brexit policies."

A UK government spokesman said: "Scotland's economy is improving but still lags behind the UK as a whole. We want the Scottish government to make full use of their powers to support the economy.

"We are also determined to make the most of opportunities presented by Brexit, trading with new partners and reaching new markets, and we will negotiate as one UK to reach the best possible deal as we forge a new partnership with the EU."