Publication - Research and analysis

Monthly economic brief: May 2021

Published: 2 Jun 2021
Gary Gillespie
Chief Economist Directorate
Part of:

The monthly economic brief provides a summary of latest key economic statistics, forecasts and analysis on the Scottish economy.

18 page PDF

1.8 MB

18 page PDF

1.8 MB

Monthly economic brief: May 2021

18 page PDF

1.8 MB


Consumer sentiment and consumption activity have been significantly impacted by the coronavirus pandemic and restrictions on activity, however sentiment has strengthened at the start of 2021.

Consumer sentiment

  • In Q1 2021, the Scottish Consumer Sentiment Indicator was -13.5, an increase of 8.1 points compared to Q4 2020, indicating that consumer sentiment strengthened over the quarter.
    Scottish Consumer Sentiment Indicator
    Bar chart showing the net balance of Scottish Consumer Sentiment between Q2 2013 and Q1 2021.
  • Underlying the composite indicator, all current and expectation indicators increased over the quarter. The current indicators for the economy, household financial security and attitude to spending all remained negative (reflecting the significant economic impacts of the pandemic over the past year), however, strengthened from their lowest levels in the times series.
  • Looking ahead, households continued to expect the economy and their household financial security to improve over the year (relative to the current situation). The largest increase over the quarter was in the economy expectation indicator for the next 12 months, likley reflecting optimisim for the easing of restrictions supported by the vaccination programme and the potential for economic recovery.
    Economic Performance Indicators (next 12 months)
    Line chart showing the Scottish Consumer Sentiment expectation indicators between Q2 2013 and Q1 2021.
  • Early data for the first two months of Q2 2021 suggests further strengthening in consumer sentiment with the overall monthly indicator rising to -6.1 in April and -0.2 in May, supported by improved sentiment for current and expected economic and household finance circumstances.[16]
  • Sentiment indicators have been highly sensitive to rapidly moving developments on the pandemic over the past year and will be a key factor influencing the pace at which consumption recovers as restrictions are lifted.

Early indications of the impacts of restrictions easing on mobility

Google’s COVID-19 Community Mobility Reports use anonymised information from users to show how mobility has changed compared with a pre-pandemic baseline. The data provides insights into the levels of movement across a range of location categories: retail; grocery and pharmacy; transport; parks; workplaces; and residential.

The impact of the COVID-19 restrictions is clearly visible in the data, with movement around transport, retail and workplaces significantly below pre-pandemic baseline levels, with changes reflecting the tightening and easing of restrictions across the year.[17] To the extent that the consumer facing services sector has been impacted by COVID-19 restrictions, assessing the level of movement around those locations as lockdown restrictions ease across April and May can provide an early indicator of recovery in economic activity in that sector of the economy.

Change in Google Movement data for Scotland up to 20th May 2021
Line chart showing levels of movement across location types in Scotland between March 2020 and May 2021.

Each nation in the UK has seen a pick-up in the pace of recovery for visits to retail and recreation hubs as restrictions loosened. On the 26th April, mainland Scotland moved to level 3 permitting the opening of non-essential retail and a partial reopening of the hospitality and services sector. This saw a strong recovery in movement and by the end of April visits to Retail and Recreation hubs were estimated to have gone from being around 40% below the pre-pandemic baseline to around 20% below. Further easing of restrictions on 17th May (level 2) across most areas in Scotland further improved the level of visits which recovered to 15% below the baseline.

With respect to the broader economic recovery, it will be important for the strengthening of mobility in retail and recreation hubs to translate into strengthening consumption and broader economic activity. The latest SRC-KPMG Scottish Retail Sales Monitor suggested that retail sales had picked up at the end of April as non-essential stores reopened, however, sales remained a sixth lower than their pre-pandemic levels.[18] Further ahead, mobility in these areas will likely be linked to the further opening of the wider retail/hospitality/tourism sectors for consumers alongside the return of office workers back to city and town centres.

Household Savings and Consumer Credit

  • At an aggregate level, household savings have increased significantly during the pandemic, as restrictions have caused expenditure to fall while support schemes have helped protect household incomes.
  • It is important to note that this has not been the case across the whole economy. In particular, lower income households have faced more significant financial challenges.
  • Bank of England data show the net flows from households into deposit-like accounts was £16.2 billion in March, continuing the trend of slightly lower savings since December, although it remains notably higher than the monthly average of £4.7 billion in the six months to February 2020.[19] Between March 2020 and March 2021, net inflows have totalled £199 billion. In the previous twelve months (February 2019 – February 2020), net inflows had totalled £61 billion.
    Changes of UK Monetary Financial Institutions Sterling M4 Liabilities to Household Sector
    Bar chart showing changes in financial institutions Sterling liabilities to UK households (2019 – 2021)
  • Alongside this, between March and June 2020 and between September 2020 and March 2021 households on aggregate repaid more consumer credit than they took on in new borrowing.
  • Latest data for March 2021, show households made net repayments of £0.5 billion on consumer credit, which was less than in recent months and less than the monthly average over the past year (£1.9 billion).
    Bar chart showing changes in UK net consumer credit per month (Jan 2019 – Mar 2021).
    Net Consumer Credit per month
  • Overall, the extent to which households subsequently spend accumulated savings as restrictions ease remains uncertain, however Bank of England and OBR forecasts assume that around 10% of the additional savings will ultimately be spent over the next 3 years.

Interest rate and inflation

  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate increased to 1.6% in April, up from 1.0% in March, its highest rate since February 2020.[20] However, inflation continues to be suppressed by the reduction in VAT for the hospitality industry in July 2020.
    UK inflation & interest rate
    Line graph showing UK inflation (CPIH and CPI) and Interest Rate between 2008 and 2021.
  • The increase over the month was driven by increased contributions from housing and household services and transport, principally from increased gas, electricity and motor fuel prices, alongside an increase in clothing and footwear prices.
  • The Bank of England maintained the Bank Rate at 0.1% in May 2021 and their current programme of Quantitative Easing, and in their current central scenario analysis project inflation to temporarily rise to 2.5% in 2021 before easing back towards the 2% target.[21]
  • The increase in inflation projected over the year in part reflects the fading out of previous energy price falls while more recent rises in energy prices feed through. On the supply side, business surveys have signalled increasing input cost pressures in recent months (e.g. raw materials) which are expected to start passing through to consumers as restrictions ease and demand strengthens.
  • The pace and strength of rebound in consumer demand as restrictions ease and the extent to which aggregate savings are unwound across the economy remains an area of uncertainty for growth and inflationary pressure, particularly in the short term as restrictions potentially continue to ease at different rates across regions reflecting the ongoing public health risks that remain.