Scottish economic bulletin: December 2024

Overview

The Scottish Economic Bulletin for December reviews the latest economic conditions as we approach the end of 2024 and look towards the new year. Economic conditions have shown sustained improvements this year, relative to 2023, although latest indicators suggest that the pace of growth has slowed during the second half of the year. That said, latest forecasts point to the underlying pattern of strengthening growth continuing over the coming year, which is supported in the short term by a more expansionary fiscal policy.

GDP grew by 0.3% in the third quarter of 2024, the third consecutive quarter of economic growth, albeit the pace of growth continued to ease back from the first half of the year. The services sector was the main driver of growth over the quarter and has been over the past year during which Scotland’s GDP has grown 0.9%. This was underpinned by further robust growth in consumer facing services, which alongside growth in construction output over the quarter, offset a fall in production output.

Labour market strength remains evident, with latest Labour Force Survey (LFS) estimates showing unemployment fell to 3.3% in July to September. LFS response rates mean that these estimates should be treated with caution, however wider labour market indicators continue to suggest resilience in the labour market, though with a degree of loosening from last year. PAYE payrolled employee numbers have remained largely stable at 2.46 million and Scotland’s unemployment claimant count rate rose to 4% in October. While the pace of nominal earnings growth has slowed from last year, it remains robust with annual pay growth in October rising to 6.2% in nominal terms and 3.8% in in real terms.

Inflation increased from 1.7% in September to 2.3% in October, broadly in line with forecasts pointing to a further slight pick-up in inflation going into the new year. The recent increase was largely driven by the rise in electricity and gas prices, in part due to the rising Energy Price Cap for the fourth quarter. More broadly services prices remain a key underlying driver of inflation rising by 5% over the year while goods prices fell 0.3%.

Business surveys suggest optimism has softened slightly in recent months, with main business concerns including both falling demand for goods and services, and taxation. This edition of the bulletin presents new analysis on the impact of changes to employer National Insurance Contributions on different industries in Scotland. Consumer sentiment has picked up in October having dipped in September, though remains in negative territory at -5.1.

Overall, economic conditions have stabilised and improved notably from 2023, however risks remain to the outlook. Looking forward, latest projections from the Scottish Fiscal Commission indicate further improvements in economic growth, rising to 1.5% in 2025 and 1.6% in 2026.