Monthly economic brief: June 2021

Overview

Latest data show Scotland's economy has made further progress in its recovery from the pandemic, with the easing of lockdown restrictions over April and May supporting an increase in business and consumer activity and providing further confidence for a stronger economic outlook. However, the slight delay in further loosening of restrictions until July in response to the recent rise in coronavirus cases emphasises the risks from the pandemic and the economic recovery remains fragile.

The easing of restrictions in recent months has seen an improvement in both economic output and labour market conditions as businesses have resumed trading, enabling more staff to return from furlough. This has been most evident in the hospitality and recreation sectors which were most impacted by lockdown restrictions and in which we've recently seen the sharpest pick-up in activity.

In April, Scotland's GDP increased 2%, its third month of growth, and in which the latest increase was particularly driven by consumer facing parts of the services sector as businesses resumed trading from lockdown restrictions. Accompanying this, visits to retail hubs also picked up pace from April as consumers returned to physical stores and it is encouraging to see monthly consumer sentiment nearly back to positive territory. However, visits to retail hubs remain below pre-pandemic levels and higher shares of businesses in the hospitality and recreation sectors continue to report that turnover is lower than normal for the time of year, signalling that pressures on cash flow for many businesses in these sectors remains high, particularly as cost pressures for many firms have been rising.

As businesses have reopened and demand has picked-up, Scotland's labour market has also shown further signs of strengthening activity in recent months as the number of staff on furlough has gradually fallen and there has been a rise in recruitment activity. Latest survey data indicates 8.1% of the workforce were on furlough in the first half of June, down from around 20% in March, with the largest falls in accommodation and food services, arts, entertainment and recreation and wholesale and retail.

Alongside this, recruitment activity has also strengthened in April and May as vacancies for both temporary and permanent staff have risen, while the number of payrolled employees has continued to rise accompanied by a further decrease in the claimant count. Both indicators remain notably weaker than their pre-pandemic levels, however the recent improvements have been encouraging as part of the recovery from recent lockdown restrictions and with an eye to the scheduled end of the furlough scheme in September.

The challenges resulting from the pandemic and the pace of recovery continue to vary across sectors. In April, Scotland's GDP had partly recovered to 3.7% below its pre-pandemic level; its highest level of output since the start of the pandemic. Consumer facing parts of the service sector continue to remain furthest below their pre-pandemic levels, reflecting the impact of restrictions, however output from other parts of the service sector (public and private), alongside the manufacturing and construction sectors, has recovered above pre-pandemic levels, as businesses have been less directly impacted or have been able to adapt to restrictions.

Overall, the latest economic outlook is one of improved optimism for this year, with the prospect of a more rapid recovery back to pre-pandemic levels of output than had previously been projected. This reflects the recent strong outturn data, as well as the planned further easing of restrictions and the ongoing delivery of the vaccination programme.