Impact of EU referendum result on Scottish economy

downloadProfessor Graeme Roy, Director of the Fraser of Allander Institute at the University of Strathclyde, said: “There is no doubt that the EU referendum result will have major implications for the Scottish economy both over the short and longer term.

“The weight of academic evidence published prior to the vote concluded that, as a result of both an immediate increase in macroeconomic uncertainty and the reduction in trade and investment over the months and years ahead, unemployment would be higher, inflation higher, output lower and the public finances weaker as a result of a decision to leave the EU.

“As a small open economy, with significant trading links to Europe (with over £11.5bn of exports each year), we cannot expect Scotland to be immune from these challenges. Some sectors, businesses and households will face a particularly difficult few months. Weakening of the pound will make Scottish exports more competitive, but also make imports more expensive; including key supply inputs like fuel.

“As we highlighted in the recent Fraser of Allander Economic Commentary, Scotland flirted with recession in 2015 and a shock such as this may be sufficient – as Mark Carney has indicated – for the economy to re-enter negative territory.

“The long-term implications for productivity, both in terms of a likely decline in international investment – at least in the short-run – and lower domestic investment as a result of predicted higher borrowing costs, could be especially important given the weak performance of both Scotland and the UK since the financial crisis. This is before any consideration is given to the potential implications for the public finances, migration, and the UK’s terms of trade.

“UK and Scottish leaders need to do everything that they can to deliver stability in the short-term, but must also act quickly to resolve key fundamental questions around the UK and Scotland’s position in Europe and the global economy.”