Economic Commentary - January 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.

Global business activity slowed in November mainly due to supply chain problems and a deceleration in consumer spending as Covid-19 restrictions increased in many countries. Growth though was still recorded, particularly in the US. The UK economy grew by 0.9% in November and reached pre-pandemic levels (of February 2020). However, this was before the latest Omicron outbreak, and more recent business surveys suggest that business activity growth has slowed, although demand for workers remains strong. Scotland’s economy is following a similar pattern of slower growth but with a resilient labour market. Businesses across most industry sectors are continuing to report challenges such as inflationary pressures (rising energy, staff and raw materials costs), recruitment difficulties and some supply chain disruption. These are leading to businesses becoming increasingly uncertain about prospects. Labour shortages are leading some employers to increase wages and offering other incentives such as enhanced benefits packages to attract and retain talent. Hybrid models of working are continuing to be offered by many businesses allowing a combination of home and office working. Global GDP is likely to continue to recover in 2022, but recovery is likely to be unbalanced with lower income countries with low rates of vaccination seeing less of a rebound. There are imbalances in advanced economies too, with acute labour shortages for some sectors combined with rising prices for goods and services where supply outstrips demand.

The latest forecasts for Scotland predicts a return to pre-pandemic GDP levels by 2022Q2. Supply side pressures (staff and costs in particular) remain a significant and rising challenge for Scottish businesses, despite increasing consumer sentiment in November.