For the period between May to July 2023, the employment rate in Scotland increased by 0.5 percentage points to 75.1%, while the unemployment rate rose to 4.3%, up by 1.2 percentage points over the previous quarter. Furthermore, the rate of economic inactivity fell by 1.5 percentage points to 21.4%.

Wellbeing Economy Secretary Neil Gray attributed the rise in unemployment and drop in economic inactivity to the broader challenges facing the Scottish economy. These include a cost of living crisis, high inflation rates, and increasing interest rates.

Mr Gray said: “The Scottish Government is committed to supporting more people into work – including those with a disability, those with health conditions and those with caring responsibilities – through employability and skills support as well as continuing to support and promote flexible working from day one of employment

Neil Gray

“The 2023-24 Programme for Government has committed to expanding access to funded childcare which can support more parents and those with caring responsibilities get back into work sooner or take up employment.”

He noted: “However, with industries such as hospitality and agriculture still facing recruitment challenges an urgent reassessment of UK Government immigration policy is necessary to increase access to the international labour and skills that Scotland needs for our economy and communities to prosper.

“With full powers over migration, Scotland could boost its workforce and tackle recruitment challenges, many of which have been caused by the end of free movement and the Brexit imposed on Scotland by the UK Government.”

Professor Stuart McIntyre of the Fraser of Allander Institute at the University of Strathclyde said: “The magnitude of the jump in the unemployment rate in the latest data is a surprise, even if signs of a weakening in the labour market are not.

“This increase in the unemployment rate is primarily driven by changes in those economically inactive rather than in employment. Indeed, the employment rate has increased over this same period.

“What to make of this?

“Economic inactivity is a broad category encompassing everything from those in full-time education, to those who are too sick to work and those who are retired. Movements into and out of economic inactivity reflect a mix of push and pull factors.

“Weak growth in the economy, coupled with a period of wage growth lagging behind inflation, has squeezed household budgets and will be pushing more people who were economically inactive to search for work. In turn, increasing the unemployment rate and reducing the rate of economic inactivity.

“So long as the employment rate remains relatively high, this increase in the supply of workers could help address recruitment challenges and in turn ease some of the inflationary pressure.

“The worry is that the current economic headwinds will start to feed through to lower employment as well as higher unemployment in the months ahead.”