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20 September 2017, 06:39
Economists have urged the UK Government to provide more clarity on the powers that will come to Holyrood after Brexit.
The University of Strathclyde's Fraser of Allander Institute said uncertainty over the negotiations on leaving the EU were the "greatest cloud" on the horizon for the Scottish economy.
The institute's latest commentary said that while Scotland's economy returned to growth in the first quarter of 2017, the improvement was on the back of "an exceptionally weak" last two years.
Analysts said growth "remains fragile and well below trend" and while employment is at a record high, household budgets are being squeezed by rising inflation eroding take-home pay.
Director Graeme Roy said: "The latest leading indicators suggest the economy continues to recover, albeit at a relatively fragile pace.
"We believe Brexit has the potential to act as a long-term brake on Scotland's growth potential and, to date, very little progress seems to have been made by the UK Government in its negotiations with the EU.
"One area the UK government could provide greater clarity on is over the specific powers they envisage being transferred to the Scottish Parliament post-Brexit. This would help enable preparatory discussions between business and the devolved administration.
"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 towards the lower-end of our forecast ranges are more likely."
The report's forecast for growth in 2018 is the same as in June at 1.4%, while its 2019 forecast has been revised upwards to 1.7%.
Mr Roy added: "Given Scotland's below-trend growth, a focus - both by policymakers and business - on the long-term drivers of growth such as innovation, investment and skills, is more important than ever."
John Macintosh, head of tax for Deloitte in Scotland which supports the commentary, said: "Despite the considerable economic challenges, most sectors are actively looking to use technology to deliver gains in productivity, develop new products and services and grow into new markets.
"The challenges created by political uncertainty can't be underestimated and there is work to do if we are to realise the latent potential in the Scottish economy."
The report follows the Scottish and Welsh governments publishing amendments to the EU withdrawal bill aimed at preventing the UK government from taking control of devolved policy areas when powers are returned from the EU.
The administrations have branded the legislation a ''power grab'' and have said they cannot recommend giving the Bill consent unless it is substantially changed.
Ministers have also published a list of 111 powers returning from the EU which the UK Government has identified as ''intersecting'' with the devolution settlements.
A Scottish Government spokeswoman said: "This report underlines the huge threat the UK Government's extreme Brexit plans pose to jobs, investment and living standards in Scotland.
"Scotland's economy is fundamentally strong, but is being put at serious risk by the proposals to leave the world's biggest single market."
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."