Scots economy recovers earlier than thought – FAI

The Scottish economy is set to recover to pre-pandemic levels three months earlier than previously thought.

That’s according to the latest quarterly economic commentary from the Fraser of Allander Institute (FAI), which predicts growth of 6.5% in 2021 and 4.8% in 2022.

The economy is now predicted to return to pre-pandemic levels in April 2022.

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.

However, in the Deloitte-sponsored economic commentary the University of Strathclyde research institute discusses a number of risks that threaten recovery.

September 30 is the last day of the Job Retention Scheme which has supported household incomes and businesses since March 2020.

The FAI said 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.

As well as the risk of joblessness, labour shortages are becoming clear in many sectors, threatening goods shortages and adding to wider inflationary risks.

Mairi Spowage, Director of the FAI, 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.”

Steve Williams, Senior Partner at Deloitte in Scotland said: “While the economy is still feeling the impact of the pandemic, after the initial bounce its recovery has certainly moved into a new phase; one marked by slower, more constrained growth and higher inflation.

“Although it is likely that the global recovery will continue, the situation remains fluid, particularly as government support winds down, and as supply chain issues continue,   presenting a risk to growth.

“With greater focus than ever on the climate crisis, businesses must look at the associated opportunities and risks that come with this.

“Ultimately, a bold, entrepreneurial approach will need to be taken by business leaders, who will have to employ creativity and innovation at scale.

“This will be supported by new ways of living, working and consumption, all of which will be required for the growth of a greener economy as we recover and thrive following the pandemic.”