SCOTLAND’S underperformance of the UK as a whole in terms of economic growth will likely narrow this year, as the negative effects of weak oil prices ease, PricewaterhouseCoopers forecasts.

Gross domestic product in Scotland is projected, in the accountancy firm’s latest economic outlook, to grow by 1.2 per cent this year and by 1.1 per cent in 2018.

PwC noted this was adrift of UK-wide growth forecasts of 1.5 per cent for this year and 1.4 per cent for 2018, and that the expansion projected in Scotland was among the weakest for the 12 nations and regions of the UK. The accountancy firm has shaved its forecast of UK growth this year from 1.6 per cent in its March projections.

It cited the squeeze on household finances and consumer spending arising from the combination of a sharp rise in inflation, which has been triggered by sterling’s post-Brexit vote weakness, and subdued nominal wage growth. PwC also flagged the negative impact on business investment arising from Brexit uncertainty.

The UK economy grew by a below-trend 1.8 per cent last year.

Commenting on the anticipated slowdown in UK growth this year and next, PwC says: “This is due to slower consumer spending growth and the drag on business investment from ongoing political and economic uncertainty relating to the outcome of the Brexit negotiations.”

PwC chief economist John Hawksworth declared the accountancy firm’s growth forecasts for Scotland for this year and 2018 were “essentially unchanged”.

Figures published earlier this month from the Scottish Government showed the economy north of the Border grew by 0.8 per cent quarter-on-quarter in the opening three months of this year. This was well ahead of 0.2 per cent expansion in the UK as a whole over the same period.

However, comparing the year to March with the preceding 12 months, the Scottish economy grew by only 0.5 per cent. This was well adrift of below-trend expansion of 1.9 per cent in the UK as a whole over the same timeframe.

Scotland has been hit hard by the impact of weak crude prices on its key oil and gas sector, and on its broader economy.

Mr Hawksworth said: “What hit Scotland last year was the knock-on effects from lower oil prices. To some extent, those have mitigated but oil prices are still pretty low…

“That is why, to some extent, the growth gap might be less this year than it was last year.”

The accountancy firm, publishing its economic outlook today, says: “PwC expects consumer spending growth to continue to be moderate in 2017-18 as inflation eats into real spending power and wage growth remains subdued despite record employment rates.”

Mr Hawksworth observed that lower unemployment was not, as it would have done in the past, pushing pay higher, attributing this to a decline in employees’ bargaining power.

He said: “Even though unemployment has come all the way down in the UK, there is no sign that is pushing up wages in the way it would have in the 1970s or 1980s.”

Lindsay Gardiner, who chairs PwC in Scotland, said: “While some may see concern at the fact Scotland and Northern Ireland are at the bottom in terms of [forecast] GDP improvement, there is actually very little separating most of the UK. This year, the best growth we expect any [nation or] region [of the UK] - except for London - will see is 1.5 per cent and it is 1.4 per cent next year.”

He added: “Where concerns should perhaps be focused is around wage growth as many are offsetting limited growth through increased borrowing - which may have a longer-term impact via interest rate rises or employment downturn.”