Review Body on Doctors' and Dentists' Remuneration (DDRB): written evidence - 2024-2025 pay round

B. Economic and Labour Market Conditions in Scotland

Overview

17. Economic growth remained subdued during 2023 as inflationary pressures and higher interest rates have continued to weigh on economic activity. The inflation rate has fallen notably over the year, however remains above the 2% target rate.

18. The labour market has remained resilient with low unemployment, however recruitment activity has slowed during the year while earnings have returned to growth in real terms.

19. The economic outlook is uncertain, however economic growth is forecast to remain subdued but strengthen in 2024 to 0.7% as inflationary pressures continue to ease. Unemployment is forecast to rise slightly to 4% in 2024-25 while average nominal earnings growth is forecast to ease to 3.6% over the same period.

GDP growth

20. Economic growth has remained subdued in 2023 however has been more resilient than forecast at the end of 2022. Latest data show the Scottish economy grew 0.2% in the three months to October 2023 (UK: 0.0%) down from 0.4% in the three months to September. This partly reflects a fall in output of 0.5% during the month of October (UK: -0.3%).^[2],[3]

21. Most recently, Purchasing Managers Index business survey data indicate that business activity in Scotland remained subdued further into the final quarter of the year. The business activity indicator was 47.1 in November, slightly improved from October, however was the third consecutive month indicating falling activity.^[4]

22. Looking ahead, the Scottish Fiscal Commission (SFC) forecast economic growth in Scotland to remain subdued but strengthen to 0.7% in 2024 and 1.1% in 2025. This is broadly in line with the Office for Budget Responsibility (OBR) forecast for the UK economy for growth of 0.7% in 2023 rising to 1.4% in 2024.^[5],[6]

Inflation

23. Consumer price inflation pressures remained elevated in 2023 however eased over the year with the inflation rate falling to 3.9% in November, down from its recent peak of 11.1% in October 2022. The inflation rate is at its lowest rate since September 2021 however remains above the Bank of England’s 2% target rate.^[7]

24. To reduce inflationary pressures, the Bank of England’s Monetary Policy Committee (MPC) increased the Bank Rate to 5.25% in August 2023 and has held it unchanged since then. This is expected to continue feeding through to weigh on demand during 2024.^[8]

25. In November, the Bank of England forecast inflation to gradually return to the 2% target by the end of 2025, with interest rates expected to remain restrictive over the coming year.^[9]

Labour Market

26. Labour market conditions were resilient in 2023 in the face of subdued economic growth and inflationary pressures, however have loosened slightly over the year.

27. Scotland’s unemployment rate remained low at 3.8% in August to October 2023, up 0.6 percentage points over the year, while the employment rate fell 1.7 percentage points to 74.3% and inactivity rate increased 1.2 percentage points to 22.6%.^[10]

28. The labour market remained relatively tight in the second half of 2023 with business surveys indicating that some businesses continue to experience staffing shortages and recruitment challenges.^[11] However recruitment activity slowed from earlier in the year with the RBS Report on Jobs indicating that permanent vacancies fell for a fifth consecutive month in December.^[12]

29. The SFC forecast unemployment will rise slightly over 2024-25 to 4% and towards its long-run trend rate of 4.1% at the end of the forecast period in 2027-28.

Earnings

30. Labour market tightness and inflationary pressures have generated upward pressure on earnings over the past year.

31. Median nominal PAYE monthly pay increased 4.4% over the year to November 2023 to £2,334, down from 7.2% annual growth in October 2023. Once adjusted for inflation, PAYE median earnings grew 0.5% on an annual basis in November; the eighth consecutive month of annual growth following the period of falling real pay during 2022 and the start of 2023.^[13]

32. At a sector level, latest data for August to October 2023 show that average weekly earnings for regular pay in Great Britain grew 6.9% on an annual basis in the public sector and 7.3% in the private sector.^[14]

33. The SFC forecast average nominal earnings in Scotland to grow 6.6% in 2023-24, moderating to 3.6% in 2024-25 and 3% in 2025-26.