Unemployment remains near record lows but cracks are starting to appear in the UK labour market as surging energy, food and rental costs come to bear on the economy, observes Gavin Mochan, managing director of s1jobs.
The rate of growth in Scotland’s workforce is still increasing but has slowed to levels not seen since April of last year. Anecdotal evidence suggests increased caution among employers on hiring plans as the economy slides into a downturn over the winter.
For large-scale recruitment to resume we need to see an easing in inflationary pressures. A key for sustaining growth is consumer confidence, which is currently being battered by various economic forces.
Consumer finances are under strain from unprecedented increases in fuel costs with 35% of households in Scotland now in fuel poverty. For those in local authority and housing association homes fuel poverty rates are now above 50% despite government action to alleviate this.
Poorer households on pre-payment meters are particularly impacted by rising energy bills. This is particularly stressful because unlike direct debit customers, those on pre-payment meters are unable to spread these costs over the entire year.
Food inflation is also running high at 15% compared to 20% for energy, but a further squeeze on household finances that doesn’t receive as much attention as it should is the level of rental charges in the private sector.
To alleviate this, workers are struggling to increase their wages across virtually all industries, with those in unionised sectors of the economy taking industrial action as wages are falling far short of keeping pace with inflation.
These pressures are unlikely to diminish soon, with latest projections by the Scottish Fiscal Commission showing that real earnings will decline by 2.7% in the coming year. As households try to recover rising costs they will either have to use savings or they will have to keep cutting back on consumption.
The latter will be an obvious drag on company revenues, with the Office for National Statistics reporting that the greatest fall in UK vacancies has been across the hospitality, retailing and wholesaling sectors.
Overall vacancy levels are still high by historical standards, but the outlook is far less positive. Amid widespread expectations that unemployment is set to rise, it’s crucial that policymakers start working now on how to help consumers and firms through the difficult months ahead.
