The cost of living crisis is about to hit businesses who have already suffered from the pandemic a new report warns.

The Fraser of Allander Institute says people having less cash to spend will mean firms in the leisure and hospitality sectors will be struggling again in 2022.

It found little ground for optimism for sectors hit hard by the lockdowns and restrictions of 2020 and 2021that kept them closed or operating at limited capacity.

READ MORE: Beat the Squeeze: shoppers seek out supermarket price deals

The think tank said the war in Ukraine will have “implications for the costs of goods and services in our country”.

While Scotland’s economy has now returned to pre-pandemic levels, it also noted that the number of people who are economically inactive because of long-term sickness is up by more than 20,000 compared to two years ago.

The report said: “This may well become the key legacy of the pandemic, and in the months ahead should be a key priority for Government.

“Two years on from the first lockdown, it would be great to be optimistic about the economic prospects for 2022.

READ MORE: Beat the Squeeze: Why are energy prices going up?

“Unfortunately, global uncertainties and the cost-of-living crisis, which are not unrelated to each other, have doused that enthusiasm with a bucket of cold water.”

Fraser of Allander director ,Professor Mairi Spowage, warned that both consumers and businesses “are going to feel the squeeze in the coming months, if they haven’t already, with soaring energy and food bills”.

She warned measures announced by Chancellor Rishi Sunak are “not likely to be sufficiently targeted to help those on the lowest incomes”.

With businesses and households feeling the pinch, Prof Spowage said: “This has the potential to limit the economic recovery we hope to see during 2022, as consumers cut back on discretionary spending, and even perhaps businesses limit production due to input costs.”

She added: “These sectors may suffer further as consumers cut back discretionary spending as the cost-of-living crisis really starts to bite. The resilience of these businesses is likely to be tested yet again.”