Economic Commentary – August 2022

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.

All major global economies reported weak growth or even contraction in the second quarter of 2022 as high inflation, conflict in Ukraine, and supply chain challenges related to the pandemic all weighed on economic performance. UK GDP fell by 0.1% in the second quarter as consumers cut back on spending and as pandemic-related activity such as test-and-trace came to an end. Business surveys suggest further loss of momentum in July as inflationary pressures continue to dampen demand. Growth in the Scottish economy slowed to 0.7% in the three months ending May and just 0.1% over April and May. Business activity also appears to be stalling, with rising economic uncertainty resulting in reduced inflows of new orders in July. Scottish businesses across all sectors continue to report widespread inflationary pressures, recruitment difficulties and some supply chain disruption. Impacts appear greatest among small businesses. Unemployment remains near a record low and the number of payrolled workers in Scotland continues to grow. However, wages are failing to keep pace with inflation, and there are signs some businesses are becoming more hesitant to push forward with growth and recruitment plans due to an increasingly uncertain economic outlook. The outlook for the global economy has weakened considerably, with growth in 2022 now forecast at just 3%, and all major economies expected to grow more slowly in 2022 and 2023. The UK could fall into recession by the end of 2022 and is projected to have the weakest growth of the world’s largest economies in 2023, largely as a result of higher inflation than in other large economies. The Scottish economy is expected to grow by around 4% in 2022 but could stagnate in 2023 as consumers cut back on discretionary spending and businesses limit production due to high input costs.

This paper makes no recommendations.