Latest official date paints a nuanced picture of the Scottish economy at the close of 2023 with the landscape marked by contrasts across different sectors and labour markets.
Last month the manufacturing sector witnessed a downturn in business, attributed largely to difficult market conditions and escalating costs for raw materials. In contrast, the services sector experienced a boost in new work. Across the broader UK landscape, the situation appeared more optimistic, with a significant upturn in new business for the first time in half a year.
READ MORE: Wage growth cools further but still outstripping inflation
Despite the challenges in certain sectors, Scottish firms display a guarded optimism looking into 2024. There's general consensus that the coming year could bring about an increase in output, buoyed by hopes for more favourable market conditions, augmented advertising efforts, and an influx of new orders.
However, this positive outlook is somewhat less pronounced in Scotland than in the rest of the UK.
The year's end in Scotland also marked a notable decline in the demand for permanent staff, the most significant drop witnessed in more than three years, contrasting sharply with the situation in the UK, where the decline was more modest. Industry sectors like blue-collar, engineering and construction were particularly impacted by this trend.
On the other hand, sectors such as nursing, medical care, and executive fields saw a rise in staffing demand.
On a UK-wide scale, job vacancies decreased for the 18th consecutive time, falling by 49,000 to 934,000. Despite this decline, vacancy numbers still sit above pre-pandemic levels.
2023 saw a substantial easing of the labour shortages and recruitment challenges that were prevalent in 2022. In November of the previous year, 43% of firms reported labour shortages, a figure that has since decreased to 28%. Similarly, the percentage of firms facing difficulties in recruiting staff dropped from 39% to 30%.
Despite these overall improvements, certain sectors like construction, accommodation and food services continue to grapple with recruitment issues, mainly due to a shortage of qualified applicants and a low number of applications.
Scottish workers have been beneficiaries of falling inflation, experiencing real terms wage growth for eight consecutive months. The Scottish Fiscal Commission is optimistic about wage growth in 2024, predicting average earnings to rise by 6.6%.
As of now, median monthly pay in Scotland is outpacing that of the UK, showing a 7.8% increase compared to 6.6%. However, if the downward trend in vacancies continues, wage growth in some sectors may slow down. Nevertheless, unemployment rates in Scotland are at a historically low level, standing at 3.8%, below the UK average of 4.2%.
Scottish consumers have faced significant financial strains over the past two years, a fact that is reflected in consumer sentiment measurements. Despite some improvement, consumer sentiment remains in negative territory, with the last positive reading recorded in January 2022.
For a shift towards positive sentiment, there needs to be a period of sustained real wage growth and a continued reduction in the prices of goods and services that impact household finances. The latest data from the Office for National Statistics (ONS) underlines the ongoing challenges, with a significant percentage of respondents finding it difficult to afford energy bills (41%) and housing costs (37%)
In summary, the Scottish economy at the year's end demonstrates a complex interplay of factors, with varying trends across different sectors and labour markets. While some areas show signs of recovery and optimism, others continue to face challenges, painting a mixed picture of the economic landscape as Scotland heads into 2024.
John Walls is head of data analysis at s1jobs.
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