Economic Commentary - August 2021

The Economic Commentary provides a monthly update on global, UK and Scottish economic trends, drawing on recent economic data as well as feedback from businesses.

The methodology consisted of desk research.

Economic growth returned to all major economies in the second quarter of 2021, although Asian economies underperformed after being disrupted by a resurgence in COVID-19 cases. The pace of the UK's economic recovery now appears to be easing as the initial boost from re-opening fades, while on the supply side more businesses are experiencing growth constraints from shortages of labour and materials. Scotland’s economy is following a similar pattern of more moderate growth and an improving labour market, although conditions remain challenging for businesses that were impacted most by restrictions. Scottish businesses are broadly optimistic as restrictions are lifted, with many now able to turn their attention to day-to-day matters. However, a return to normal trading conditions remains distant for some businesses, and some consumer-facing sectors are uncertain about the pace at which demand will fully return. Staff shortages are emerging as a major issue in parts of the Scottish economy; supply chain disruption and a difficult trade environment represent further challenges for some businesses.

The outlook for the global economy remains strong, but differences in vaccine access and policy support may see the pace of recovery diverge across countries. The latest forecast for the UK economy is for record growth in 2021 and a quicker return to pre-pandemic levels of activity than previously anticipated. Increased debt levels and ongoing cost pressures have the potential to constrain Scottish businesses in the near term – but rebounding consumer confidence and further adoption of digital technology provide opportunities to maintain momentum.