Economic Commentary - November 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 slowed across most major economies in the third quarter of 2021 as supply chain disruption restricted activity and a resurgence of COVID infections in some countries dampened consumer spending. The UK's economic recovery is being constrained by supply chain problems, with manufacturers unable to match the growth of service providers. Scotland’s economy is following a similar pattern of slower growth but a resilient labour market, as improving demand conditions prompt businesses to increase capacity. Scottish businesses are generally optimistic as demand picks up, but some uncertainty remains. Businesses are identifying challenges such as recruitment difficulties and supply chain disruption, while inflationary pressures (rising energy, staff and materials costs) are impacting virtually all businesses. Overall, businesses feel these challenges may limit their ability to take advantage of opportunities. Some businesses also feel unable to pass rising costs on to customers and this may undermine their ability to invest in the future. The outlook for the global economy has weakened slightly but remains strong, despite ongoing concerns that developing countries with limited access to COVID-19 vaccines are being left behind in the recovery. The latest official forecast for the UK economy is for strong growth in 2021, a smaller increase in unemployment in the final quarter than previously anticipated, and a return to pre-pandemic levels of activity in the first quarter of 2022.

Difficulty meeting demand due to staff or materials shortages and rising overheads are the major headwinds facing Scottish businesses in the near term – but improved consumer confidence and the reopening of key trading partners to visitors provide opportunities to maintain momentum.