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November briefing

Labour shortages and price rises threaten recovery

As the economy continues to reopen, labour shortages and price rises continue to threaten the recovery, according to data compiled by SCDI.

In Scotland employers saw an ‘unprecedented surge’ in vacancies in August according to RBS data, putting pressure on both starting salaries and inflation.

The unemployment rate at 4.5% in Scotland has remained relatively stable despite the end of the furlough scheme although the full impact of the end of this is still to feed through to official data.

At the end of July 2021 (the latest published figures) there were still 116,000 workers in Scotland on the scheme although this was on a downwards trend.

Wage rises will add to the growing cost pressures facing employers. Inflation remains high and rose 2.9% in September, thanks to price increases in  transport, housing and household services and restaurants.

Things are also forecast to get worse before they get better with the Bank of England forecasting inflation will rise to 4% by the end of the year.

Two thirds of SME manufacturers expect an impact in the coming three months (the highest since 1988) and concerns about labour shortages at their highest level for 33 years. This has impacted on business investment intentions which remain strong but have softened.

Despite the cost rises, the expansion of the economy has continued following reopening with a 5.5% rise in UK GDP in the second quarter.

Household spending, which rose by 7.2% is one driver but spending levels were 6.3% below the pre-pandemic levels. Retail sales growth continued in September but both food and non-food sales growth slowed.

Although confidence amongst Scottish households rose in the third quarter, rising inflation and a forthcoming increase in National Insurance contributions in spring 2022 may dent future rises.  

Clare Reid is Director of Policy & Public Affairs at SCDI

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