Scots economy to recover sooner than forecast
Business activity is picking up
The Scottish economy is expected to recover to pre-pandemic levels three months earlier than previously thought.
According to the Fraser of Allander Institute the economy should grow by 6.5% in 2021 and 4.8% in 2022 and get back to pre-pandemic levels in April next year.
Despite growth contracting slightly in July, mainly due to a fall in renewable electricity production, growth was significantly faster during Q2 than expected, leading to forecasts for 2021 and 2022 being revised up.
One prediction that remains “unknown” in the Economic commentary is how many of the workers on the furlough scheme – which ends today – will become unemployed or unable to secure the type and level of work they want.
This uncertainty coincides with the cancellation of the Universal Credit uplift which will bring additional financial hardship to around half a million families in Scotland.
While there is a high risk of joblessness, labour shortages are becoming clear in many sectors, threatening goods shortages and adding to wider inflationary risks, says the Deloitte-sponsored report.
Consumer confidence, so important for the improvement in outlook over the last six months, could start to wane as prices across the economy rise.
Mairi Spowage, director of the Strathclyde University-based Institute, said: “Following a stronger recovery in economic activity than we were expecting during May and June, and the further easing of restrictions during the summer, we have revised up our outlook for growth.
“However, there are several reasons that growth could stall. If new public health restrictions need to be imposed, or if the end of the furlough scheme and the Universal Credit uplift lead to an easing off in consumer spending, or supply chain disruption and shortages continue, the recovery could flatten off or even go into reverse.”
A Bank of Scotland survey shows business confidence in Scotland rose five points during September to 39%, the second consecutive month of growth.
The latest Business Barometer shows that confidence among Scottish firms in their own business prospects month-on-month was up 14 points at 39%. When taken alongside their optimism in the economy, it was down five points to 38%.
The Business Barometer questions 1,200 businesses monthly and provides early signals about UK economic trends both regionally and nationwide. This month’s survey was conducted before fuel disruption and ongoing supply chain issues tightened their grip.