The latest official figures paint a picture of a resilient economy but the risks to stability and growth are mounting. On the positive side of the ledger, job vacancies across the UK rose from March to May to a near record high of 1.3 million, although at a declining pace of growth when compared to recent months. Redundancies also fell during the quarter to record lows.
In Scotland, the unemployment rate of 3.2 percent is the joint-lowest we have ever seen and compares with a UK rate of 3.8%. Median monthly pay for Scottish workers is up 11.1% compared to the pre-pandemic period.
In any other period of history, these numbers would be cause for unbridled celebration. Yet as we all know, the spectre of inflation is casting a long shadow.
Adjusted for the current rate of inflation of 9%, real pay has declined this year by the most since 2011. In April alone prices rose twice as fast as wages which saw Scottish workers’ real pay fall at the fastest rate for more than 20 years.
The rapid pace of overall employment growth in Scotland is being driven in part by firms working through backlogs of orders. We have now seen 14 months of employee growth, although the increase is weaker in Scotland than in the rest of the UK.
While output from the manufacturing and services sectors is still expanding, this fell from an 11-month high of 59.9 in April to 55.9 in May, a three-month low. A rise in total new orders, driven by the service sector, goes part way towards explaining buoyant employee numbers.
Three-quarters of the UK’s regions saw a rise in outstanding business – orders received but not yet completed – in May. The southwest of England recorded the highest levels of backlogs, followed by Scotland and Northern Ireland.
Against this mixed backdrop, there are several other idiosyncratic factors that further complicate the picture in Scotland.
The Institute for Fiscal Studies (IFS) recently warned that given a projected £3.5 billion deficit in the country’s finances, the Scottish Government faces the unenviable choice of raising taxes or cutting spending, either of which will impact economic performance at a time of rising risks.
Budgets for key government departments are already set to be cut by 8%, removing £1bn from the public sector. Meanwhile, funding for enterprise, tourism, and trade promotion is due to fall by 16%.
While Scottish firms think economic activity will continue to recover in the coming year, the sentiment here is slightly weaker than that for the UK. That said, cost increases remain a key concern with both input and output prices close to record levels.
Writing in today’s Herald, s1jobs Managing Director, Gavin Mochan, said: “We are seeing a bit less business appetite to hire new, permanent talent than in recent months, and some UK companies are increasingly relying on contingent workers to cope with fluctuating circumstances. Worker shortages are no longer actively getting worse, but the market remains tight.”
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You can read the full analysis by s1jobs on the Herald website.