Increasing employment, rising wages and low inflation encourage Scots consumer optimism

BDO’s employment index, which indicates firms’ intentions to hire, although still on a downward trend from November 2014 when it reached 113.8, remains positive at 105.1.

This suggests that employment will continue to increase over the coming months, albeit at a slower rate, even though the latest ONS labour market figures show that a record 31.3m people are already in work.

Rising wages are also contributing to the country’s buoyant consumer outlook, with total pay packages up 2.4 per cent, according to the latest ONS labour market figures. The introduction of the National Living Wage is also set to give those on the lowest incomes a welcome boost this April.

Coupled with low prices rises (the Consumer Prices Index rose by 0.1 per cent in the year to November 2015) consumers should have more disposable cash in 2016. Businesses are benefiting from low price rises too with the BDO Inflation Index remaining at 96.4 for the second month running.

This consumer power is protecting Scottish business confidence, at least in the short term, for 2016 from global headwinds. BDO’s Optimism Index – which predicts growth six months ahead – remains above the long term trend at 100.5 although this is also on the slide from a high of 104.9 in November 2014.

Commenting on the findings, Martin Gill, Scottish head of BDO, said: “It is clear that consumers are benefiting from the continued economic recovery which has lead to strong employment figures, low inflation and rising wages. This is boosting Scotland’s businesses as they too benefit from the low inflation rate and continued falling fuel prices. The result has been to offset the negative impact of the downward trends in the wider global economy. However, there is no room for complacency, and the Scottish and UK governments need to protect economic growth by encouraging and focusing on business investment. There is also likely to be an increase in base rates this year which may dent consumer confidence in the coming months. We will also need to see whether next Wednesday’s Scottish GDP figures indicate continued growth in the economy.”

“Initiatives such as raising the annual investment allowance would provide a greater incentive for companies to innovate and help to insulate the UK economy from risks abroad.”