Scotland’s unemployment rate jumped sharply in the last quarter as almost 40,000 people became jobless, according to new official figures.

The Office for National Statistics (ONS) reported the unemployment rate for those aged 16 and over rose by 1.2 percentage points to 4.3%, higher than before the pandemic.

The increase brought the Scottish figure into line with that of the UK as a whole (up 0.5%), after a year in which Scotland’s unemployment rate lagged that of the UK. 

The ONS estimated there were 122,000 people unemployed between May and July in Scotland, up 37,000 on the previous quarter, against 2,689,000 in work.

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The unemployment rate for men rose by over the quarter to 4.8%, while the rate for women rose to 3.8% after another 24,000 men and 13,000 women began looking for work..

However the employment rate for people aged 16 to 64 rose by 0.5 points over the quarter to 75.1%, while the UK rate fell 0.5 points to 75.5%.

The economic inactivity rate of those aged 16-64 also fell 1.5 points to 21.4% in Scotland, while the UK rate rose 0.1 points to 21.1% 

UK economy in 'danger zone'

Across the UK, the number of unemployed rose 159,000 quarter-on-quarter to 1.5 million.

This coincided with employment plunging 207,000 quarter-on-quarter to 32.9m in the three months to July, the steepest drop since the autumn of 2020.

The latest data also revealed that the number of vacancies fell below the million mark for the first time since the summer of 2021, down 64,000 in the three months to August to 989,000.

Union leaders said the UK economy was in “the danger zone”.

Wage inflation remained at 7.8% in the three months to July, the highest since comparable records began in 2001.

Separate HMRC data estimated median monthly pay for payrolled employees in Scotland was £2,292 in August, up 7.9% on the same period the previous year. 

This compared to 6.7% for the UK as a whole.

Median monthly pay for payrolled employees in Scotland in August was 22.4% higher than on the eve of the pandemic in February 2020, compared to 21.4% up for the UK. 

Chancellor Jeremy Hunt said it was “heartening” to see the number of employees on payroll was “still close to record highs and that our unemployment rate remains below many of our international peers”.

He added:“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation.”  

Scottish Labour MSP Daniel Johnson said “This is the latest bout of grim economic news under the SNP and the Tories.

“Climbing rates of unemployment will weaken our economy and cause yet more misery for those pushed out of work. 

“Humza Yousaf promised to prioritise economic growth – but his government’s record is one of relentless economic mismanagement.”

Scottish Government responds

SNP Wellbeing Economy Secretary Neil Gray welcomed the rise in the employment rate and the fall in the economic inactivity rate.

He said the increase in unemployment “reflects the ongoing challenges facing the economy amid the ongoing cost of living crisis, compounded by high inflation and interest rates”.

He said: “The Scottish Government is committed to supporting more people into work – including those with a disability, those with health conditions and those with caring responsibilities – through employability and skills support as well as continuing to support and promote flexible working from day one of employment

“The 2023/24 Programme for Government has committed to expanding access to funded childcare which can support more parents and those with caring responsibilities get back into work sooner or take up employment.   

“We are developing a lifetime skills offer for adults and our apprenticeship programme is enabling employers to invest in their work force and provide greater opportunities to those at the start of their careers.

"This will sit alongside a Green Industrial Strategy which will help businesses and investors to realise the enormous economic opportunities of the global transition to net zero and create good, well-paid green jobs across Scotland.”

He called for the devolution of immigration law so that Scotland could fill vacancies in sectors such as hospitality and agriculture. 

“With full powers over migration, Scotland could boost its workforce and tackle recruitment challenges, many of which have been caused by the end of free movement and the Brexit imposed on Scotland by the UK Government.”

Scottish Secretary Alister Jack added: “Even in the face of global challenges, Scotland’s job market has remained resilient. Since 2010, the number of people in work in Scotland has increased by over 200,000. But we know there is more to do to help people find and succeed in fulfilling jobs.

“Our £3.5 billion package  will remove barriers to work, including by delivering more tailored job support, raising the amount that can be claimed for childcare by those on Universal Credit, and expanding the Midlife MOT to help upskill over-50s. Taken together, this will help to unlock employability potential, delivering on our promise to grow the economy and halve inflation.”

Professor Stuart McIntyre of the Fraser of Allander Institute at the University of Strathclyde said the magnitude of the jump in the unemployment rate was "a surprise".

He said: "This increase in the unemployment rate is primarily driven by changes in those economically inactive rather than in employment. 

“Indeed, the employment rate has increased over this same period.

"Weak growth in the economy, coupled with a period of wage growth lagging behind inflation, has squeezed household budgets and will be pushing more people who were economically inactive to search for work.

“In turn, increasing the unemployment rate and reducing the rate of economic inactivity.

"So long as the employment rate remains relatively high, this increase in the supply of workers could help address recruitment challenges and in turn ease some of the inflationary pressure.

"The worry is that the current economic headwinds will start to feed through to lower employment as well as higher unemployment in the months ahead.”

15th interest rate hike likely

Pay growth matched Consumer Prices Index (CPI) inflation over the three months to July, meaning real wages did not fall for the first time since October 2021.

Total pay including bonuses jumped by 8.5%, meaning that it outstripped inflation for the first time since March 2022, up 0.6% with CPI taken into account.

While a relief to cash-strapped households, it will concern Bank of England policymakers trying to bring stubborn inflation down to 2% using higher interest rates.

Martin Beck, chief economic adviser to the EY Item Club, said the Bank faced a “quandary”, with record wage growth, but the jobs market is “on the turn” after 14 rate rises in a row.

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He said: “The latest numbers don’t change the likelihood of the Monetary Policy Committee (MPC) opting for another rate rise next week”

Many economists expect a rise from 5.25% to 5.5% on September 21 meeting.

However, Mr Beck added that “growing evidence of the adverse effect of policy tightening on the labour market is one factor which means interest rates should soon peak”.