BARRIERS to immigration likely pose the biggest problem for the Scottish economy in any hard Brexit, representing an even greater potential “headache” than the impact on trade, a think-tank has warned.

The cautionary note on labour supply in the wake of Brexit was sounded by Dougie Adams, economic adviser to the EY Scottish ITEM Club, as the influential think-tank projected below-trend growth north of the Border for years.

The EY Scottish ITEM Club says, in a report published today, that “assuming there is no change of UK government…domestic risks will continue to be dominated by Brexit for some time to come”.

Mr Adams declared Brexit was “definitely a knock to growth” in Scotland and the UK as a whole. He noted current and projected expansion was “well below the type of growth that prevailed before” the Brexit vote.

On the immigration issue, Mr Adams said: “I think Scotland’s biggest exposure to let’s call it a hard Brexit – where immigration becomes much harder – [is that] labour supply is potentially the biggest headache for the Scottish economy.

Labour supply is potentially a bigger headache than trade.”

While noting schemes would be put in place on the immigration front in the UK, following Brexit, he added: “It becomes bureaucratic, and adds to costs and hassle.

“I think that is where I see a worry for Scotland. Per head of population, we don’t get anything like the immigration that some other parts of the UK get, but we actually do need it.”

Asked whether he believed Scotland could get a bespoke deal on immigration, Mr Adams replied: “Who knows? It is the lightning conductor in all of this. If it is a [Theresa] May-led Tory Government, she is hell-bent on getting [immigration] numbers down. She would be very resistant to getting a deal. On the other hand, Scotland could have a very good argument about getting a deal.”

Mr Adams, who cited questions over how to “police” a bespoke immigration deal for Scotland within the UK, cited a belief that there would be a “lot of noise” in this debate but that it was likely nothing would happen in terms of Scotland securing its own arrangements.

Senior figures in the Scottish engineering, information technology, hospitality, food manufacturing and university sectors have been among those to express concerns over access to, and retention of, staff from other European Union countries in the wake of Brexit.

The EY Scottish ITEM Club predicts growth of 0.9 per cent north of the Border this year. This is half of the 1.8 per cent expansion forecast by the ITEM Club for the UK as a whole, but up from the 0.4 per cent forecast for 2017 Scottish growth in December. The Scottish economy grew by 0.4 per cent last year.

The Scottish growth forecast for next year has been cut from 1.2 per cent to 0.7 per cent. The EY Scottish ITEM Club has trimmed its projection of expansion in 2019 from 1.4 per cent to 1.1 per cent, and is predicting 1.4 per cent growth in 2020, down from 1.7 per cent.

Mr Adams noted, before the financial crisis, Scotland’s long-term annual trend rate of growth was slightly greater than two per cent. UK growth is also forecast by the EY ITEM Club to be well below its trend rate all the way out to 2020.

The Scottish ITEM Club says “the prospect of a second referendum on Scotland’s constitutional position hangs in the air, adding an additional and potentially corrosive layer of uncertainty for many Scottish businesses”.

However, mulling Scotland’s underperformance of the UK as a whole, Mr Adams emphasised the impact of the “oil price bust”. He also highlighted Scotland’s loss of “a lot of banking decision-making” following the financial crisis.

Mr Adams said there was “possibly some” effect on the economy from the prospect of a second independence referendum, but added: “The whole answer is not there. There are multiple things going on.”

He voiced concern over rising economic inactivity in Scotland, noting the causes were not clear.

The EY Scottish ITEM Club forecasts employment north of the Border will fall by 24,000 over the period to 2019. It flags the impact of surging inflation on households, and Mr Adams noted signs that consumers had “exhausted themselves in terms of taking on debt and running down savings”.

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