Scottish economic bulletin: November 2024

Overview

This edition of the Scottish Economic Bulletin covers latest economic conditions as we move into final quarter of 2024. Economic indicators continue to show sustained improvements relative to 2023, although business and consumer survey evidence indicates that the pace of activity has eased slightly from earlier in the year.

GDP grew by 0.1% in the three-months to August, its slowest rate since January, and was driven by positive growth in the Construction and Production sectors, which offset flat growth in the Services sector. However, GDP grew by 0.7% when compared to the same period in 2023 and reflects the improvement in growth over the past year as a whole.

The labour market continues to perform strongly, with unemployment falling to 3.9% in June to August while the number of PAYE employees grew by 0.2% over the year to 2.46 million in September. Wider labour market indicators remain robust though indicate some cooling over the year with a pick-up in the claimant count unemployment rate to 4% and a rise in inactivity rate to 23.2%, while nominal growth in median earnings eased to 4.9%.

Inflation has continued to stabilise around its 2% target, falling to 1.7% in September and supported by a further fall in goods prices (-1.4%) while services prices continue to moderate more slowly (4.9%). Inflation is forecast to rise slightly back above target going into 2025, however the Bank of England’s decision to reduce interest rates to 4.75% and market expectations of a gradual reduction over the coming year, is reflective of the more stable inflation outlook.

Despite improved economic conditions over the year, latest business and consumer sentiment surveys highlight risks to the economic outlook in the second half of the year. Businesses have become more concerned about falling demand and less concerned about energy costs. This is reflected in wider business activity indicators which show business optimism fell to a 3‑month low in September, while indicators of capital investment remain subdued albeit have improved from 2023.

Furthermore, the Scottish Consumer Sentiment Indicator fell to -6.9 in September, its lowest level since the end of 2023, with respondents easing back on their expectations for the economy and their household financial security over the coming year. This highlights the risk to consumption and growth going forward and links to business data citing weaker demand in the economy. However, it may be temporary if it was simply capturing uncertainty related to the UK budget.

Overall, economic conditions have improved compared to 2023, despite indications of slightly slower activity in the third quarter. Forecasts indicate strengthening economic growth going into 2025 and further stabilisation in inflationary pressures. Nevertheless, weaker business and consumer sentiment continue to highlight the risks to growth domestically, while slower growth alongside ongoing geopolitical tensions continue to present headwinds at a global level.