Scotland business

Oil price could hit Scots economy

oil rig
Image caption The institute said the unrest in the Middle East carried with it the threat of a major "oil shock"

Scotland's economy could be hit by upheaval in the Middle East and rising oil prices, it has been warned.

The latest economic forecast from the Fraser of Allander Institute said the rate of economic recovery appeared to be slowing.

It said this left the economy vulnerable to outside factors.

The report predicted that rising fuel prices and other costs, on top of public sector cuts, would affect the economy's growth in the year ahead.

The Fraser of Allander Institute said that, after an initial rebound, Scotland's economy was showing signs of faltering again.

It predicted that growth at the end of last year was likely to have been weaker, even after discounting the effect of the winter weather.

"Oil shock"

And although unemployment was falling, the institute said it believed the recovery was not strong enough to be sustained.

It warned that the ongoing political unrest in the Middle East carried with it the threat of a major "oil shock" and inflationary prices.

The report said that, along with the impact of public sector cuts this year, this could make 2011 even more precarious than last year.

According to Paul Brewer, senior partner at PwC, which sponsored the survey, the next 12 months will be difficult.

He said: "For Scotland, 2011 will be the year that spending cuts start to bite as the public sector faces up to the harsh realities that lie ahead. The scale of the financial challenge will be like nothing we have seen before.

"However, it does give us a unique opportunity to do things differently, innovating service delivery as we redesign our public sector services."