Fall in oil price to give Scottish economy a lift, forecast experts

Scotland’s economy faces an economic boost as a result of the plunge in oil price, analysts have predicted.

The University of Strathclyde’s Fraser of Allander Institute has acknowledged activity within the oil and gas sector has suffered as a result of the steep decline.

However, the Institute claimed the “potential for a sizable boost to spending is significant” as consumers benefit from lower prices.

The Institute has revised their forecasts for GDP growth up from November on the basis of a “strengthening” of the recovery, particularly in investment.

It comes amid renewed calls for decisive action from Chancellor George Osborne to avoid the industry being hit by an “economic triple whammy”.  

Brian Ashcroft, Emeritus Professor of Economics at the University of Strathclyde, said: “The falling oil price and recovering investment could provide a welcome boost to the recovery just as there are signs of some slowing in the rate of growth in most major economies except the US, and as the troubles in the Eurozone worsen with the increased risk of deflation and a distinct threat of Greece exiting the Euro. 

“The absence of good data and uncertainty about future oil prices allow only a crude estimate of the impact on the Scottish economy of the fall in oil prices. 

“Nevertheless, we estimate that the impact on employment this year could range from 9,700 net additional jobs to a net job loss of 600 on best and worst case scenarios.”

The Institute has forecast GDP growth this year at 2.6 per cent - up from 2.2 per cent in November's forecast - and 2.4 per cent next year, up from 2.1 per cent.

The Chancellor will deliver his statement to parliament two weeks today, with concerted calls for a hefty tax cut in the wake of job losses being confirmed across the industry.

David Glen, head of tax for PwC in Scotland, said: “As a result of the volatile, low oil prices, we believe there is a real danger of an economic triple whammy across the oil and gas industry: reductions in income may result in incremental investment becoming uneconomic, potentially diminishing field life and accelerating decommissioning. 

“With the 2015 UK budget on the horizon, there is real scope for the Chancellor to reform what is currently a highly complex tax regime: protecting existing production; incentivising future exploration; safeguarding skills in the North Sea and across the UK supply chain; and preventing what could be an irreversible decline in the oil and gas industry.”