As Scotland's economy continues to navigate the post-pandemic world, the interplay between the labour market, consumer sentiment, and business concerns paints a nuanced picture of resilience and ongoing challenges.
Recent reports and surveys shed light on the critical issues of recruitment difficulties, economic inactivity due to poor health, and slowly improving consumer confidence, with Scotland's labour market putting in a robust performance in the first half of this year.
As of June 2024, the number of PAYE employees in Scotland rose to 2.47 million, marking the highest level since the time series began in 2014. But the unemployment rate in Scotland over the last quarter was 4.4%, which although unchanged from the previous three months was still the highest of all countries in UK and slightly higher than the UK average of 4.2%.
One of the most pressing issues facing businesses is the ongoing challenge of recruitment.
After a period of sharp spikes in recruitment activity during 2021 and 2022, which followed the economy's recovery from the pandemic, recruitment has gradually stabilized. However, online job adverts in July 2024 were still 30% lower than in July 2023, aligning with pre-pandemic levels.
Despite the stabilization, many businesses continue to face significant difficulties in recruitment, particularly in sectors such as construction, accommodation and food services, and manufacturing.
In June 2024, 25.5% of businesses reported experiencing a shortage of workers, a rise from 21.2% in the first quarter of the year. Similarly, 26.8% of businesses reported recruitment difficulties in May, up from 21.9% in the first quarter, though still below the 2023 average of 34.9%.
These recruitment challenges are exacerbated by several factors, including a lack of qualified applicants and a low number of applications. Moreover, 21.4% of businesses indicated that they could not afford to offer attractive pay packages, further complicating the recruitment landscape.
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The good news for Scottish workers was the median monthly salary is 5.8% higher than this time last year, slightly more than the UK figure of 5.6% and the highest recorded.
There is a troubling relationship between poor health and economic inactivity in Scotland. While the economic inactivity rate had been trending downward across the UK from 2001 to 2015, Scotland saw a divergence from this trend, with inactivity rates rising post-2015 and experiencing a brief dip during the pandemic before climbing again in 2023, currently standing at 23.1%.
The impact of poor health on economic inactivity is particularly stark among certain demographics. For men aged 25-49, nearly 60% of economic inactivity at the end of 2023 was attributed to permanent illness or disability, a significant rise compared to earlier decades. Women, particularly those aged 50-64, have also seen a rise in inactivity due to health issues, with nearly half of this group citing permanent ill health as the reason.
Access to healthcare plays a crucial role in these trends. NHS service wait times have lengthened, particularly in A&E services, where the percentage of patients not meeting the four-hour wait time target has increased sharply since the pandemic.
This reduced access to healthcare services may be contributing to the rising rates of economic inactivity due to health issues, further complicating Scotland's labour market dynamics.
On a more positive note, consumer sentiment in Scotland has shown significant improvement in 2024, with the Consumer Sentiment Indicator rising by 8.5 points in the second quarter of the year. This marks the first return to positive territory in more than two years, driven by better household circumstances and more optimistic expectations for the economy.
The improvement in consumer sentiment is reflected in the quarterly data, with the indicator reaching 2.4 in Q2 2024, its highest level since the end of 2021.
Consumers now feel, on balance, that the economy is performing better than in the previous year. However, the overall picture remains mixed as indicators related to household finances and spending attitudes improving but still in negative territory.
Although inflation has fallen to its 2% target as of May and June 2024, core inflation remains at 3.5%, with services prices contributing to the persistence of inflationary pressures. These economic realities have left many households cautious about their financial security, limiting their willingness to spend, which in turn poses risks to the broader economy.
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Businesses in Scotland are also grappling with a range of concerns, particularly regarding demand and cost pressures.
More than 16% of businesses cited falling demand for goods and services as a primary concern in July 2024. This issue has been on an upward trend, even as concerns about inflation and energy prices have eased.
Despite these challenges, business optimism remains relatively stable, with most expecting their performance to either stay the same or improve over the coming year. However, the pressures of rising labour costs, raw materials, and energy prices continue to influence business decisions, particularly in sectors like manufacturing and services, where cost inflation pressures are moderating but still present.
In conclusion, while Scotland's economy shows signs of resilience, particularly in the labour market and consumer sentiment, significant challenges remain. The ongoing difficulties in recruitment, the impact of poor health on economic inactivity, and the mixed signals from consumer sentiment and business concerns all point to a complex and evolving economic landscape that will require careful navigation in the months ahead.
John Walls is head of data analysis at s1jobs.
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