Economic Commentary [December 2021]

The announcements this week will feel like groundhog day for many, with memories of the restrictions in the run up to and aftermath of last Christmas. The threat of the new Omicron variant, which is likely to replace Delta as the dominant variant of COVID-19 by the end of this week, has led to fresh restrictions on the retail and hospitality sector. While many of these are not as severe as restrictions earlier in the year, it will worry many businesses operating in these hard hit sectors, particularly through this crucial Christmas period. Despite the familiar feel of this December, in this edition of the Commentary, we consider how far we have come in the last 12 months. The economy is in a much better place than feared a year ago, underpinned by the delivery of the vaccination programme and the advancements made in understanding and treating the virus. As as we moved through the first half of 2021, the prospects for growth in the economy continually improved. Despite growth faltering in the Autumn due to rising prices and supply chain constraints, expectations are much better for the outlook in 2022 and beyond, compared to what was feared earlier in the pandemic. The removal of the furlough scheme, based on the evidence we have seen to date, has not had the negative impact on employment and unemployment that was feared. However, what is emerging are early signs that Scotland's recovery may be lagging behind the UK as a whole. In our forecasts in this edition, we are predicting growth of 6.4% in 2021, followed by 4.7% in 2022. The economy is now expected to get back to pre-pandemic levels in May 2022: one month later than predicted in September due to growth in the Autumn underperforming the previous forecast