Economic Commentary – October 2022

The Economic Commentary provides a regular 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 contractions in the second quarter of 2022 as high inflation, conflict in Ukraine and supply chain challenges all weighed on economic performance. The IMF and OECD are both projecting that the UK will have among the weakest growth rates of the world’s largest economies in 2023, mostly due to higher inflation levels and the impacts of the UK Government’s fiscal and monetary policy alignment. In the three months to August, UK GDP contracted by 0.3% fueling concerns of a recession. Business surveys for September show UK private sector activity falling at its quickest rate since early 2021 as inflationary pressures continue to dampen demand. Inflation in the UK continues to be high (10.1% in the year to September), while the value of the pound has depreciated, pushing up import prices and further fuelling inflation. To help combat rising prices, the Bank of England increased interest rates to 2.25% in September. The Scottish economy contracted by 0.2% in the three months to July. More recent data shows that business activity declined in September (for the second month in a row) as new orders fell (for the third consecutive month), as did business confidence. Unemployment in Scotland remains near a record low and the number of payrolled workers continues to rise. However, wages are failing to keep pace with inflation. Scottish businesses across all sectors continue to report widespread inflationary pressures, recruitment difficulties and some supply chain disruption. This is impacting the ability to meet demand for some businesses. The Scottish economy is forecast to grow by 3.6% in 2022 but with contractions in the last two quarters of the year, meaning Scotland would be in recession by the end of the year. Output is forecast to further contract in 2023 (-0.6%), before returning to growth in 2024 (+0.8%).

This paper makes no recommendations.