FAI Publications, Scottish Economy

Fraser of Allander Institute Economic Commentary 2021 Q3

Economic recovery continues, but risk of squeeze on living standards looms large

Despite strong growth in second quarter of 2021, price rises across the economy could mean a difficult winter to come

The Scottish economy is set to recover to pre-pandemic levels three months earlier than previously thought.

This is according to the latest quarterly Economic Commentary from the Fraser of Allander Institute, which predicts growth of 6.5% in 2021 and 4.8% in 2022. The economy is now predicted to get back to pre-pandemic levels in April 2022.

Despite growth contracting slightly in July, mainly due to a fall in renewable electricity production, growth was significantly faster during Q2 than expected, leading to forecasts for 2021 and 2022 being revised up.

In the Deloitte-sponsored Economic commentary, the University of Strathclyde research institute discusses a number of risks that threaten recovery.

Today is the last day of the Job Retention Scheme, which has been pivotal in supporting household incomes and businesses since March 2020. How many of the currently furloughed workers will become unemployed or unable to secure the type and level of work they want is unknown.

This uncertainty coincides with the cancellation of the Universal Credit uplift which will bring additional financial hardship to around half a million families in Scotland.

As well as the risk of joblessness, labour shortages are becoming clear in many sectors, threatening goods shortages and adding to wider inflationary risks.

Consumer confidence, so important for the improvement in outlook over the last six months, could start to wane as prices across the economy rise.

Mairi Spowage, Director of the Institute, said: “Following a stronger recovery in economic activity than we were expecting during May and June, and the further easing of restrictions during the summer, we have revised up our outlook for growth.

“However, there are several reasons that growth could stall. If new public health restrictions need to be imposed, or if the end of the furlough scheme and the Universal Credit uplift lead to an easing off in consumer spending, or supply chain disruption and shortages continue, the recovery could flatten off or even go into reverse.”

As the economy moves, however uncertainly, into a new phase, policy focus turns towards dealing with the climate emergency. COP26 in Glasgow in November is seen as the last chance for world leaders to make the step change needed to halt the most harmful form of climate change.

Steve Williams, Senior Partner at Deloitte in Scotland said: “While the economy is still feeling the impact of the pandemic, after the initial bounce its recovery has certainly moved into a new phase; one marked by slower, more constrained growth and higher inflation. Although it is likely that the global recovery will continue, the situation remains fluid, particularly as government support winds down, and as supply chain issues continue,   presenting a risk to growth.

“With greater focus than ever on the  climate crisis, businesses must look at the associated opportunities and risks that come with this. Ultimately, a bold, entrepreneurial approach will need to be taken by business leaders, who will have to employ creativity and innovation at scale. This will be supported by new ways of living, working and consumption, all of which will be required for the growth of a greener economy as we recover and thrive following the pandemic.”

In this edition of the Commentary, the research institute analyses the latest data about energy use in the UK, progress towards climate change targets, and progress on wider environmental outcomes, to provide context for COP26.

There is also analysis of business plans and ambition to achieve corporate net zero targets.

Mairi Spowage concludes: “Few of the Government’s environmental measures are showing the progress that is likely to be needed to achieve long-term environmental outcomes.

“This adds to the fact that almost half of businesses have not set a target to get to net zero.

“It is clear that a real step change in ambition is required in order to achieve Scotland’s world leading targets. The world waits to see what will be achieved in Glasgow in November.”

This quarter’s commentary also includes:

  • A review of Real Time Indicators, giving the most up to date snapshot of the Scottish economy;
  • Analysis of farming and climate change; and,
  • Discussion of the role of economics in climate change policy.

This quarter’s commentary also includes two perspectives:

  1. The Economic Impact of Scotland’s Renewable Energy Sector, James Black, Fraser of Allander Institute
  2. Financial Firms and Climate Risk Assessment, Callum McGrath, University of Edinburgh

The full commentary can be found at


The Fraser of Allander Institute (FAI) is a leading economy research institute based in the Department of Economics at the University of Strathclyde, Glasgow.