Monthly update on the Scottish economy – September 2021

One month on from Scotland moving away from tiered restrictions and the economy continues to grow.

Most indicators tracking economic activity in real time have improved since our last update in August.

The latest GDP data for Scotland suggests that in June the economy had grown by 0.9% month-on-month, but still remained 2.1% below pre-pandemic levels.

Scottish vacancies have grown faster than the other nations of the UK, but overall levels of business activity and wages have been slower to recover. The ONS also estimate that around 4% of businesses expect to make redundancies in the coming 4 months.

The share of workers on furlough also continues to fall. However, with a large share of jobs still supported, and the end of the government furlough scheme looming at the end of September, there remains a high degree of uncertainty in the labour market.

Furthermore, research into the knock-on effects from the end of furlough by the IFS predict that those individuals with either a high earning spouse or high levels of savings; or those with middle to high earnings, are most at risk given higher financial support under the furlough scheme but lack of eligibility for universal credit once furlough ends.

The recovery however continues to be made possible by the increasing number of individuals receiving their Covid-19 vaccination. As of 31^st August, 91.1% of Scotland’s adult population had received their first dose of the vaccine, with 82.7% having received both doses.

Table 1: Real time indicators dashboard

Source: Scottish Government Monthly GDP, Scottish Government BICS, ONS (NOMIS), Adzuna

Chart 1: GDP across different sectors, Scotland, February 2020 – June 2021: Scottish GDP grew by 0.9% in June, primarily driven by the continued recovery in the services sector. Accommodation and Food services continues to contribute the most growth in the services sector and gets closer to returning to pre-pandemic levels. The construction sector also continues to contract, for the third month in a row, and is now below its pre-pandemic levels.

Source: Scottish Government

Chart 2: PMI across different categories, Scotland and the UK, July 2021: The Purchasing Managers Index which tracks economic activity has been growing across all categories over the last couple of months. The latest available data for July 2021 shows that the number of new business has grown slightly faster in Scotland compared to the UK. On the other hand, growth in the UK has been stronger for output, backlogs of work, employment, and expectations of future output.

Source: IHS Markit

Chart 3: PMI, UK and devolved nations, January 2020 – June 2021: Business activity has been growing across all UK nations since February 2021. The pace of growth has been slightly higher in the UK compared to Scotland. Furthermore, the pace of growth has slowed down since May 2021 potentially as a result of the impacts of new variants on economic activity as well as staff shortages in the labour market.

Source: IHS Markit

Chart 4: Estimated share of workforce on furlough leave by type of furlough, Scotland, 19^th October 2020 – 8^thAugust 2021:

The share of workers supported by furlough continues to fall as the government begins to wind down the scheme by the end of this month. However, around 5% of workers are still fully or partially supported by the furlough scheme. Much of the concern is among those jobs ‘frozen’ by the furlough scheme and what happens to these employees once businesses are no longer supported to employ them.

Source: Scottish Government

Chart 5: Number of advertised vacancies, UK and devolved nations, August 2020 – July 2021: The number of vacancies also continues to rise in the Scottish economy, with nearly 2.5 times the number of vacancies in July than the same time last year. Vacancies have also grown fastest in Scotland compared to the other devolved nations of the UK.

Source: Adzuna Labour Market Stats

Chart 6: Average year-on-year wage growth from HMRC RTI, UK and devolved nations, January 2020 – June 2021: The increase in demand for labour and higher profitability of firms have put upward pressure on wages. Wage growth in Scotland peaked in April 2021 but has slowed in subsequent months. Furthermore, wages in Scotland have also grown at a slower pace than the other devolved nations.

Source: ONS

Chart 7: Proportion of 16+ population who have received both doses of Covid-19 vaccination: The number of individuals fully vaccinated against Covid-19 continues to grow with 88.4% of individuals receiving their first dose and 78.7% of people fully vaccinated in the UK. Wales has the highest proportion of its population fully vaccinated against the virus, followed by Scotland.

Source: UK Government

Note on our real-term indicators analysis:

We review newly available data each month and provide a regularly updated snapshot of indicators that can provide information on how the economy and household finances are changing. Each month we investigate new sources from known data sources and use publicly available data.

Authors

Ben Cooper

Ben is an economist at the Fraser of Allander Institute working across a number of projects areas. He has a Masters in Economics from the University of Edinburgh, and a degree in Economics from the University of Strathclyde.

His main areas of focus are economic policy, social care and criminal justice in Scotland. Ben also co-edits the quarter Economic Commentary and has experience in business survey design and dissemination.

Frantisek Brocek

Frank graduated from the University of Strathclyde in 2019 with a First-class BA (Hons) degree in Economics. He is currently studying on the Scottish Graduate Programme MSc in Economics at the University of Edinburgh.

He has experience from a variety of economic policy institutions including the European Commission in Brussels, the Slovak Central Bank and the Ministry of Finance.