Experts at KPMG are predicting a return to pre-pandemic levels of growth this year, with the relaxation of coronavirus restrictions recently announced by the Scottish Government expected to help boost the economy. It comes as gross domestic product (GDP) across the UK is forecast to expand by 3.8 per cent over the course of 2022.
The following year should then see growth "moderate and settle,” according to KPMG's latest UK regional economic outlook, predicted to be 2 per cent in Scotland and 1.8 per cent for the UK overall.
After coronavirus hit, Scotland's economy contracted by 9.7 per cent over 2020, KPMG said – with this broadly in line with the UK average. By the third quarter of 2021, GDP was still 1.9 per cent below its pre-pandemic level – but by October last year the situation had improved so GDP was 0.4 per cent below.
The report follows the latest inflation figures being revealed, with the Office for National Statistics saying consumer prices index inflation jumped to 5.4 per cent in December, up from 5.1 per cent in November, and the highest level since March 1992, when it stood at 7.1 per cent. Most economists had expected 5.2 per cent for last month.
Yael Selfin, chief economist at KPMG UK, said: “Our latest analysis suggests that the Omicron variant has not impacted growth significantly in Scotland. However, rising taxes and borrowing costs, as well as elevated inflation, will squeeze households’ purchasing power. And at the same time, the lingering effects of supply-chain bottlenecks together with a persistent shortage of labour could constrain production this year.
“Nevertheless, after a relatively weak start to 2022 brought about by Omicron, growth should pick up from March, with overall GDP growth in 2022 reaching around three-quarters the rate of last year in Scotland.”
Also commenting was James Kergon, senior partner in Scotland for KPMG UK, who said: “Ensuring our economy continues to grow is the only way to make sure Scotland comes back stronger after the pandemic. Our latest estimates are welcome news, especially for businesses in retail, travel and hospitality, who have been the hardest hit in recent months.
"While there are signs of optimism for some, there’s no doubt that 2022 will be another challenging year for some sectors. It’s my hope that we can kick-start a post-pandemic growth, and make sure that Scotland’s businesses can focus on long-term growth, rather than survival.”
Vishal Chopra, head of tax for KPMG UK in Scotland, said businesses will welcome a return to pre-pandemic levels of growth this year, but “a broader ‘levelling up’ of the UK economy will require further initiatives and investment – and may take a decade or more for any major changes to be firmly embedded in Scotland”.
A recent report from the Scottish Chambers of Commerce also took a measured approach, saying Scotland’s predicted rapid return to pre-pandemic levels of economic growth have been disrupted amid concerns over factors such as the possible return of Covid-19 restrictions.