WAGE rises are being outstripped by inflation as the cost of living crisis becomes “acute”, a leading Scottish think tank has warned.

The Fraser of Allander Institute also warned the UK Government’s decision to increase national insurance next month would hurt both employees and employers.

It suggested Chancellor Rishi Sunak bring forward measures to help address spiralling household bills when he delivers his spring mini-budget on March 23.

The thinktank issued its warning after new official figures were issued showing a small improvement in Scotland’s labour market.

The Office for National Statistics said the unemployment rate for those aged 16 to 64 was 3.8 per cent between November 2021 and January 2022, down 0.3% on the previous quarter.

Howver the employment rate for those in the same age group also fell, down 0.1 points to 74.5%, on the three-month period before that.

The UK-wide employment rate was slightly higher, up 0.1 percentage points to 75.6%, as was the unemployment rate, at 3.9%, down 0.2 percentage points.

There were 2.55 million people aged 16-64 in employment in the quarter to January in Scotland, and 104,000 people unemployed.

SNP employment Minister Richard Lochhead said: “This latest time period reflects the emergence of the Omicron variant at the end of last year, when it was necessary to implement strict public health measures to curtail its spread.

“Separate HMRC early estimates show 2.42 million payrolled employees in Scotland in February 2022, 34,000 more than in February 2020, prior to the pandemic.

“While we continue to face economic challenges, especially with the rising cost of living and the potential economic impacts of Russia’s illegal invasion of Ukraine, the Scottish Government remains committed to doing all we can to help our economy recover.

“The new National Strategy for Economic Transformation will help us build an economy of secure, sustainable and satisfying jobs.

“We are also investing an additional £68.3 million in employability and training to help businesses address skills shortages and help build a fairer, more prosperous economy for everyone.”

The Fraser of Allander said inflation was “outpacing wage growth which, combined with scheduled price increases (particularly for energy) as well as increases in national insurance contributions next month, means that households are facing an unprecedented squeeze”.

It also said UK data on wage growth showed that regular pay, excluding bonuses, lagged inflation. Adjusted for inflation, growth in pay on the year (excluding bonuses) was -1%.

Dr Stuart McIntyre, head of research at the Fraser of Allander, said: “While the number of people unemployed in Scotland continues to fall, we’re seeing the emergence of an acute cost of living crisis for households, with the rising cost of living outpacing pay growth.

“The number of job vacancies across the UK has hit a new record level, but this has yet to translate into significant increases in wages. 

“However, with inflation forecast to continue to increase through 2022, businesses are going to face pressure to increase their wage offers to attract and retain key staff.

"The cost of many household essentials, including energy, is set to rise significantly in the next few weeks, and with wage growth failing to keep track, family budgets are being squeezed. Added to this, from April there is due to be a hike in national insurance contributions, further reducing take-home pay for workers.

"Employer national insurance contributions are also set to increase from next month which, alongside rising input prices and upward pressure on wages, will further increase the costs facing businesses.

"The Chancellor will unveil his Spring Statement next week, and the focus will be on what measures he brings forward to tackle the growing cost of living crisis facing families across the UK, as well as to help businesses navigate the challenges ahead.”

Tory Scottish Secretary Alister Jack said: “There are some encouraging signs in today’s employment figures, and while we should not be complacent, our economy is proving resilient.

“The UK Government is helping people right across the country get into work and progress. This is part of our vision to level up all parts of the UK, driving economic growth and creating opportunities for everyone.”