Economic Commentary - June 2024

The Economic Commentary provides a regular update on global, UK and Scottish economic trends, drawing on recent economic data as well as feedback from businesses.

The methodology consisted of desk research.

The OECD is forecasting global GDP growth of 3.1% over 2024 and 3.2% in 2025. Emerging and developing market economies are expected to grow much faster than advanced economies.

Business activity continued to increase across all major global economies in May, although the pace slowed in the UK. Globally, the manufacturing sector is showing signs of recovery, but remains in contraction in the Euro-zone.

The UK economy grew in both February (+0.2%) and March (+0.1%), and exited recession in Q1 (Jan-Mar) as GDP increased by 0.6.

The Scottish economy grew by 0.4% in March, following +0.2% in February. In the three months to March, the Scottish economy grew by 0.7%, slightly stronger than the UK (+0.6%).

Consumer price inflation fell to 2.3% in April, the lowest for nearly three years. Cost pressures continue to impact Scottish businesses as 35% reported cost increases in May (+11ppts since April), driven by the cost of labour.

The Bank of England left the interest rate at 5.25% for the 9th month in a row. High interest rates, coupled with poor economic growth forecasts, may be impacting business’ confidence to invest – just 17% of Scottish businesses planned to invest in capital between April and June 2024.

Business activity rose in all 12 UK regions in May, with Scotland the second strongest performer. Positively, the UK manufacturing sector returned to growth as output hit a two-year high. In Scotland, however, business activity growth was driven exclusively by the service sector, as manufacturing output continued to decline.

In April, 30% of Scottish businesses reported a rise in monthly turnover, whilst 25% reported a decrease (the % reporting lower turnover has been edging up). The main challenges highlighted include the cost of labour, cost of materials, competition and economic uncertainty.

Scotland’s labour market is showing signs of cooling - the unemployment rate increased 1.4ppts to 4.7% over the year to April 2024, while employment fell by 1.1ppts to 73.1%. The proportion of Scottish businesses reporting worker shortages and recruitment difficulties increased in May, although remain significantly below their peak last summer.

Scottish Enterprise customers are becoming less concerned about energy prices and inflation. With strong order books and more stable costs, they are gaining confidence to invest in growth opportunities. The main challenges are staffing and recruitment, including high staff turnover and a low number of job applicants, as well as issues with property availability and suitability.

The British Chambers of Commerce is forecasting UK GDP growth to increase slightly to 0.8% in 2024 and then to just +1.0% in 2025. For Scotland, the EY Item Club is forecasting weak GDP growth of 0.4% for 2024 before rising to 1.7% in 2025.

The paper makes no recommendations.