Costs, Covid and concerns over employment stymieing Scottish economic recovery

Scotland’s predicted rapid return to pre-pandemic levels of economic growth has been disrupted amid concerns over factors such as the possible return of Covid-19 restrictions, according to the Scottish Chambers of Commerce (SCC).

The organisation said its quarterly economic indicator “remains one of the longest standing and most accurate barometers of business sentiment in Scotland” – and it is calling for the Scottish Government to implement an economic recovery plan, enabling firms to rebound in coming months.

It said its latest such report, covering the fourth quarter of 2021 and covering 320 firms, indicates that the strong growth and reported rises in confidence have also been dampened by increasing cost pressures, caution over investment, and recruitment challenges.

Edinburgh on Hogmanay 2021 - the SCC says Omicron-prompted restrictions plunged Scotland’s businesses 'back into a spate of economic limitations and curtailments'. Picture: Andy Buchanan/AFP via Getty Images.

The study said concern over the business impact of surging inflation increased across all sectors in the survey, reaching record highs, while businesses are reporting negative net balances for both cashflow and profits, which are down on the prior three-month period.

Sectors including construction, financial and business services, and retail, are starting to experience increased recruitment difficulties and labour shortages, while ongoing issues in the domestic and global supply chain continue to affect Scottish export sales and orders.

Furthermore, whilst the findings show a rise in business confidence, due to research taking place in November, before the reintroduction of restrictions, this is largely anticipated to have plummeted again.

SCC president Stephen Leckie said the "white heat” of business activity that followed the lifting of restrictions in the summer is “now starting to cool,” and business confidence “remains highly volatile” as the Omicron variant triggered the return of Covid-19 restrictions.

“As Scotland adjusts to ‘living and working with Covid-19’ and the threat of new variants, it’s vital that the Scottish Government develop an economic recovery plan, in collaboration with business, which allows the economy to reopen fully and ends the continuous threat of a return of restrictions, allowing businesses to make a comeback in the months ahead,” he also stated.

Mairi Spowage, director at the Fraser of Allander Institute, flagged early signs that Scotland's recovery “may be lagging behind the UK as a whole” – and also called for further state help. “We are not past the point where government support for various sectors is likely to be required in order to reduce long-term scarring on the economy.”

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