Doctors' and Dentists' Remuneration - 2025-2026 pay round: Scottish Government's written evidence

C Economic and Labour Market Conditions in Scotland

Overview

17. Economic growth has strengthened in 2024 while inflation has continued to stabilise, and interest rates have started to decrease gradually. The labour market has remained resilient with low unemployment while earnings have strengthened in real terms.

18. Looking ahead, the economy is forecast to grow by 1% in 2024, rising to 1.5% in 2025, supported by a relaxing of fiscal policy. Alongside this, inflation is forecast to rise slightly to average 2.6% during 2025, though remain notably lower than in recent years. Unemployment is forecast to remain broadly stable at 3.9% in 2025-26 while average nominal earnings growth is forecast to ease to 3.7% over the same period, as earnings continue to grow in real terms.

GDP growth

19. Economic growth has strengthened in 2024 compared to 2023 with latest data showing Scotland’s GDP grew 0.3% in the third quarter of the year (UK: 0.1%) and 0.9% on an annual basis (UK: 1.0%). This was the third consecutive quarter of GDP growth in 2024, though the pace of growth has eased from earlier in the year.^[5],[6]

20. Most recently, Royal Bank of Scotland Growth Tracker business survey data indicates that business activity in Scotland continued to grow going into the final quarter of the year. The business activity indicator was 51.3 in October, broadly unchanged from September, although it is lower than earlier in the year.^[7]

21. Looking ahead, the Scottish Fiscal Commission (SFC) forecast economic growth in Scotland to strengthen moderately to 1.0% in 2024, rising to 1.5% in 2025 and 1.6% in 2026. This is slightly below the Office for Budget Responsibility (OBR) forecasts for the UK economy of 1.1% in 2024, 2% in 2025 and 1.8% in 2026, although growth is similar on a per person basis.^[8],[9]

Inflation

22. Consumer price inflation has fallen and stabilised over the past year to around its 2% target rate. The inflation rate was 2.3% in October, up from 1.7% in September.^[10]

23. Lower and more stable inflation has been reflected in the Bank of England’s Monetary Policy Committee (MPC) decisions to reduce the Bank Rate gradually from its recent peak of 5.25% in August to 4.75% in November.^[11]

24. The outlook for inflation is more stable than in recent years. The OBR forecast inflation to rise to 2.6% across 2025 before gradually easing back towards target at the start of 2027.

Labour Market

25. Labour market conditions have remained resilient in 2024 though there are signs that conditions have softened slightly over the year.

26. Scotland’s unemployment rate was 3.3% in July to September 2024, down 1.1 percentage points over the year, while the employment rate was unchanged at 73.7% and the inactivity rate rose 0.8 percentage points to 23.7%.^[12]

27. Most recently wider labour market indicators for October show the number of payrolled employees in Scotland remained broadly unchanged over the year at 2.46 million, while Scotland’s claimant count unemployment rate increased slightly in October to 4% (up from 3.9% in September).^[13]

28. The labour market remains relatively tight though has slightly loosened over the year. Online job vacancies in October fell 30% from elevated levels last year while 24% of businesses reported experiencing staffing shortages (down from 28% last year).^[14],[15]

29. The SFC forecast the unemployment rate to rise to 3.9% in 2024-25 and remain stable over 2025-26 and 2026-27.

Earnings

30. Nominal earnings growth has eased over the past year, however, has continued to outpace inflation leading to stronger growth in real terms.

31. Median nominal PAYE monthly pay increased 6.2% over the year to October to £2,466 (down from 7.2% annual growth in October 2023). Once adjusted for inflation, PAYE median earnings grew 3.8% annually (up from 2.5% Annual growth in October 2023).^[16]

32. At a sector level, latest data for July to September 2024 show that average weekly earnings for regular pay in Great Britain grew 4.7% on an annual basis in the public sector and 4.8% in the private sector.^[17]

33. The SFC forecast average nominal earnings in Scotland to grow 4.3% in 2024-25, moderating to 3.7% in 2025-26 and 2.8% in 2026-27.