UK economic and fiscal outlook: summary

Introduction

The Scottish Budget will be published on 19 December setting out spending and tax plans for 2024 to 2025.  The Budget is being set in an extremely challenging economic and fiscal environment, underlined by the latest Office for Budget Responsibility (OBR) forecasts which accompanied the UK Autumn Statement in November.

The latest forecasts come on the back of the shocks of the pandemic and cost crisis, but more broadly at a UK level, the combined effects of a decade of low growth and the negative economic impact of Brexit.

For example, new modelling by the National Institute of Economic and Social Research suggests that compared to EU membership, the UK economy is 2.5% smaller in 2023, and it expects this to increase over time to 5.7% by 2035. This equates to around £69 billion in output and £28 billion in public revenues lost as a consequence of Brexit in the UK in 2023. In Scotland, this equates to a reduction in devolved spending powerof around £1.6 billion in 2023.

In addition, recent research by the Resolution Foundation set these challenges out in stark terms, concluding that the UK has the highest income inequality of any major European economy. Real wages grew by an average of 33% a decade from 1970 to 2007, but have flatlined since, costing the average worker £10,700 per year in lost wage growth.