ECONOMIC growth in Scotland will slow sharply to a crawl next year following the UK’s vote to leave the European Union, with business investment tumbling and house prices falling, a big four accountancy firm predicts.

PricewaterhouseCoopers forecasts Scottish growth will slow to just 0.3 per cent next year, from an already significantly below-trend 1.3 per cent in 2016. Ahead of the June 23 referendum on EU membership, a PwC-sponsored economic commentary from Strathclyde University’s Fraser of Allander Institute last month forecast Scottish growth of 1.4 per cent this year and expansion of 1.9 per cent in 2017 in the event of a Remain vote.

PwC now predicts growth in the UK as a whole will slow from a well below-trend 1.6 per cent this year to just 0.6 per cent in 2017 amid political and economic uncertainty in the wake of the Brexit vote.

However, it warns the risks are weighted to the downside. And it forecasts, if downside risks materialise, UK gross domestic product (GDP) will fall by one per cent in 2017.

PwC believes such a “recession scenario” could occur if there is a lack of early progress in negotiations with other EU member states, particularly in relation to retaining access to the single market, and if the global outlook worsens.

The accountancy firm has not published specific figures for Scotland in such a scenario.

But Adam Turner, government and public sector assistant director for PwC in Scotland, acknowledged such a scenario would also likely see the economy north of the Border fall into recession.

He said: “I think you would expect it to mirror the UK-wide trend, with potential uncertainties about what it means for Scotland in terms of a future independence referendum as well.”

Scottish Chambers of Commerce last week declared it had “very acute fears” the economy north of the Border could fall into recession, citing the potential impact of the Brexit vote and recent weak performance.

Lindsay Gardiner, who chairs PwC’s Scottish operations, noted recession was not the accountancy firm’s central forecast for the UK but urged businesses to prepare for such an outcome amid the post-Brexit uncertainty. He observed companies had been wrongfooted by the Brexit vote and flagged a consequent lack of scenario planning on this front.

PwC said: “The main drag on growth will come from business investment, which had already weakened before the referendum and is likely to be particularly hard hit by the vote to leave the EU. This will be particularly true of foreign investment in commercial property and in sectors aimed at accessing the EU single market.

“While we assume some kind of free trade agreement is eventually reached with the EU, this will take time and, given the need to increase control over immigration, will almost certainly involve some reduction in access to the EU single market relative to the current position.”

Mr Turner said: “Scotland has historically done well on foreign direct investment. There will be a focus on whether these trends are adversely impacted by the uncertainty caused by Brexit.”

PwC forecasts the fall in the pound since the referendum will boost UK companies’ exports but weigh on household spending power as import prices rise.

PwC now forecasts the average house price in Scotland will dip from £137,000 in 2015 to £135,000 this year, and to £134,000 in 2017, before rising to £156,000 by 2020.

The average UK house price is now forecast by PwC to rise from £198,000 in 2015 to £204,000 this year and £206,000 in 2017, representing a sharp slowdown in the rate of increase. The average UK house price is now forecast to be £240,000 in 2020.

Mr Turner said of the house price forecasts: “The main thing is, compared with the rest of the UK, we are predicting a fall [in Scotland] whereas the rest of the UK will grow modestly. The fall in Scotland is due to a slightly lagging economic performance overall.”

However, he noted house prices were still likely to rise in some parts of Scotland, such as Edinburgh. He also underlined the length of time it would take a first-time buyer to save up a deposit.

Mr Turner said: “For first-time buyers, our latest analysis is bittersweet. Yes, they don’t have to save as long to afford a deposit for their first home as in our previous forecasts – but it’s still going to take them an astonishing 19 years if they don’t have family assistance. For comparison, in 1990 it took two years to save for a deposit for a home, while in 2000 it took six years.”

He urged government support for the housing market, to help offset any negative impact from the Brexit vote, citing its importance to the broader economy.

The EY ITEM Club think-tank warned on Monday that the UK economy, post-referendum, would take a “very different path” to the one expected three months ago.

It said: “While the fundamentals will not change in the short term, there are likely to be severe confidence effects on spending and business investment, resulting in anaemic GDP growth for at least the next three years.”

The ITEM Club cut its forecast of UK growth this year from 2.3 per cent to 1.9 per cent, and reduced its projection of expansion in 2017 from 1.9 per cent to just 0.4 per cent.

And Duncan Whitehead, EY lead for economic advisory in Scotland, said: “Scotland faces an additional layer of uncertainty due to the preference for EU membership expressed both by the electorate and the Scottish Government but also because of the entwined nature of devolved and reserved competencies between the Scottish and UK governments.”