Reeves’ warnings of ‘difficult decisions’ could dent confidence, expert says

Warnings from the Chancellor about “difficult decisions” ahead of this month’s Budget could “dent” confidence for both businesses and consumers, a leading economist has warned.

Professor Mairi Spowage, director of the Fraser Of Allander Institute think tank at the University of Strathclyde, said such “rhetoric” has the “potential to dent business and consumer confidence” and could make worse the “softening economic performance” experienced over the summer.

Her comments came as the institute upgraded its forecast for economic growth, saying GDP in Scotland could rise by 0.9% in 2024 – up from the 0.7% it had forecast in June.

Its latest economic commentary, sponsored by Deloitte, said that this change “reflects the modest economic improvements observed in recent months”.

But the report added: “Despite the near-term optimism, projections for 2025 and 2026 remain unchanged at 1.1% and 1.2% respectively.”

It found that economic growth in 2024 had been “more sustained than the stop-start pattern we saw in 2023” – with the report noting Scottish growth figures of 0.6% for the first three months and 0.5% for the period April to June were “much stronger than in recent years and just lagging behind the UK slightly”.

But it added that economic growth in May and June had been “close to zero”, with this followed by a 0.3% rise in July.

Meanwhile UK data for July “suggested that the economy was flatlining”, with researchers saying this could mean that “sustained growth may be difficult to maintain for the rest of the year”.

The report comes three months after Labour won power in the July general election, with Prof Spowage saying: “The new Chancellor Rachel Reeves has set out her view of their fiscal inheritance and the difficult decisions which may need to be made in order, as they would see it, to restore economic stability.”

Prof Spowage added: “The rhetoric around this has the potential to dent business and consumer confidence and contribute to the softening economic performance over the summer.”

But she added: “It is always difficult to definitively say that – the economy is a dynamic organism rather than a predictable mechanism.

“Many businesses may well be waiting to see what is in the Budget on  October 30 to have the confidence to grow and invest.”

Douglas Farish, head of tax for Scotland at Deloitte, meanwhile highlighted the “understandable uncertainty” among both the public and private sectors ahead of the UK Budget and the Scottish Budget, which will take place just over a month later on December 4.

Mr Farish said: “With the country facing economic challenges and financial constraints, bold public service reform is not just desirable – it’s essential to improve the way public services are delivered.

“As we approach the UK Budget in October and the Scottish Budget in December, there is understandable uncertainty across both the public and private sectors.

“Amidst these challenges, businesses and communities will be looking for stability and a clear path forward.

“It’s critical that these announcements provide thoughtful and decisive reforms that address today’s fiscal pressures, creating a more efficient and resilient public sector that can help navigate these economic headwinds while facilitating long-term, sustainable growth.”

A UK Government spokesperson said: “The Chancellor has been clear that the prize for bringing stability to our economy is investment and well-paid jobs, which is why next month’s Budget will be about fixing the foundations of our economy, so we can deliver on the promise of change.

“We are committed to working with the Scottish Government on our shared priority to kickstart economic growth so we can make every part of Scotland better off.”

Deputy First Minister Kate Forbes said: “While it is welcome that the economic forecast for this year has been revised up, it is clear there are still challenges ahead.

“It is vital the Chancellor uses her upcoming Budget to invest in public services and deliver growth and future prosperity.”