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Labour market tightening boost for wages

Salaries on rise as business confidence increases

Salaries are finally beginning to rise as the labour market tightens and businesses in Scotland develop a feelgood factor, according to the latest analysis of the economy.

Average salaries have increased by 2.4% this quarter against 1.9% for the corresponding three months last year and 1.1% in 2012. Combined with falling inflation it means real wages are up, providing some relief to hard-pressed households ahead of Christmas.

This rise coincides with a tightening of the Scottish labour market, as the unemployment rate fell to 5.9% during the three months to September 2014, below the UK-wide reading of 6.%.

Just 21% of respondents to a survey by accountants Grant Thornton said that competition is a greater challenge than a year ago, down dramatically from the 48% citing it as a concern in the final quarter last year.

Turnover is reported to have increased by 5.5% in the last 12 months, with gross profits up by 4.9%. Both of these growth rates are faster than those seen over 2013, highlighting the pickup in economic expansion.

The outlook is also positive, with businesses projecting a robust performance for the year ahead, with similar growth rates expected to continue for turnover and gross profits. This is good news for the Scottish economy, which has in recent quarters been expanding at a slower rate year on year than the UK as a whole.

One factor that is thought to be helping to support business profitability is a sharp slowdown in the growth of input prices. These rose over the past year by just 1%, well down from increases of 2.2% at the same time in 2013 and from highs of over 3% in early 2012. Businesses are also optimistic about the year ahead, with respondents saying that they expect input prices to increase by just 0.7% over the next 12 months.

Joint survey compiler, the Institute of Chartered Accountants of England and Wales (ICAEW), has 1,500 members in Scotland and found the mood much more positive than in previous years.

Paul Adderley, president of the ICAEW, said: “It is encouraging to note that Scotland is seeing an increase in confidence this quarter; both past and projected performance suggest a positive outlook for the year ahead.

“Factors such as an increase in average total salaries over the past year, support this and – combined with a drop in UK consumer price inflation – mean that for some staff at least, salaries are starting in rise in real terms for the first time since the 2008-9 recession.”

Grant Thornton managing partner in Scotland, Kevin Engel, added: “The latest data highlights a welcome return to sustainable growth. The independence referendum and much of the debate that has followed will inevitably create some uncertainty. But, the outlook appears to be positive with wage and employment growth.

“The main focus for much of the business community will now be the further devolution of powers to Holyrood and any potential impact this may have. Businesses are looking for certainty and clarity from political leaders. With proper consultation and collaboration, the outlook should remain positive.”

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