Scottish economic bulletin: January 2026

Labour Market

The labour market has loosened over the past year with falls in the number of payrolled employees and slower earnings growth.

Employment, Unemployment, and Inactivity

• Scotland’s labour market continued to have low unemployment at the start of the fourth quarter of 2025, however conditions continue to loosen compared to last year with further falls in the number of payrolled employees, subdued recruitment activity and weaker pay growth.
• The Labour Force Survey (LFS) shows Scotland’s unemployment rate remained low in the 3‑months to October at 3.8% (UK: 5.1%), however rose 0.3 percentage points (p.p) over the quarter and 0.2 percentage points over the year (UK: +0.8 p.p).^[11]
• Scotland’s Claimant Count unemployment rate (3.5%) also remains low relative to the UK as a whole (4.4%), albeit that the number of claimants of unemployment related benefits rose 1.5% (1,600) in November to 104,600, its highest level since May. Over the past year however, the claimant count has fallen by 4.9% (5,300).^[12],[13]

• The LFS for the three months to October also shows that alongside the rise in unemployment over the quarter, the employment rate rose 0.4 p.p to 74.9% and the inactivity rate fell by 0.7 p.p to 22%. Compared to last year, both indicators remain stronger with the employment rate up 1.6 p.p and the inactivity rate down by 1.9 p.p.
• However, Pay as you Earn (PAYE) Real Time Information data indicates that the number of payrolled employees in Scotland is currently falling back from its recent peak of 2.64 million in July 2024. Latest data for November shows that payrolled employees fell by 0.1% (c. 3,000 employees) over the month to 2.45 million and has fallen by 0.6% (15,000) over the past year.^[14]

• This trend over the past year is similar across most other parts of the UK with the number of payrolled employees in Scotland falling back to its lowest level since February 2023.

Recruitment Activity

• Business surveys indicate that demand for labour and recruitment activity remained relatively subdued in the second half of 2025 and has been impacted by factors including the weakness in new business orders growth, increased labour costs and elevated economic uncertainty.
• The RBS Growth Tracker survey indicates that business staffing levels showed signs of stabilisation in December, with staffing levels broadly unchanged over the month at 49.9 (50 indicates stable employment levels).^[15]

• This improved stability is also reflected in recruitment activity data with the ONS Textkernel data for November showing there were c. 46,000 new online job adverts posted in Scotland, up 15.2% from November 2024.^[16]

• Looking ahead, BICS data indicates a largely balanced outlook for labour demand at the start of the year, with 69.6% of businesses expecting their employee numbers to remain the same. However the share of businesses expecting their number of employees to decrease has risen over the past 6-months to 14.0% while there has been a fall in the share expecting employee numbers to increase (8.8%).

Earnings

• Earnings growth remained robust in 2025, however latest data indicates the pace of growth slowed notably in November.
• Nominal median monthly PAYE pay in Scotland (£2,562) grew by 1.1% on an annual basis in November, with the pace of growth falling to its slowest rate since June 2020. In real terms, adjusting for annual inflation of 3.2%, earnings fell 2.1% (UK: -0.5%).^[17]

• At a UK level, the Bank of England and the Office for Budget Responsibility (OBR) indicate that earnings growth is likely to slow further over the coming year, though by less than previously expected. Bank of England business survey intelligence suggests that pay settlements will slow from 3.9% in 2025 to average around 3.5% in 2026. The OBR forecast UK nominal weekly earnings growth to slow to 3.3% in 2026 and to 0.6% growth in real terms, as inflationary pressures continue to soften and the labour market loosens.^{[18],[19],[20]}