Scottish economic insights: November 2023

Conclusion

This edition of Scottish Economic Insights has focused on three characteristics of current economic conditions in the second half of 2023 and how they have evolved over the past year and since the pandemic.

Inflationary risks have eased over the past year as the inflation rate has fallen. Inflation has increasingly become driven by domestic factors, with labour costs the main driver in the most recent period. Despite this, we have continued to see resilience in the economy, which has avoided a recession, although performance remains weak. Both falling inflation and the economic resilience are reflected in the labour market, which has seen a return to real earnings growth, following a sharp contraction during the inflationary shock over the past 18 months. Despite the shocks to the economy, progress continues to be made in key areas, with the gender pay gap falling further in 2023.

Overall, while these indicators indicate a slight improvement in cost pressures for households and businesses, they are expected to remain fragile with downside risks. Alongside this, the forecast for growth over the coming year remains subdued with weak consumer sentiment a downside risk to consumption and growth in the near term. However, expectations and confidence can shift and there is potential to see growth supported by continued external demand and investment in Scotland. However, given the nature and scale of recent shocks this will remain a gradual process.