Scottish economic bulletin: July 2026

Labour Market

The labour market has weakened over the past year with the number of payrolled employees having fallen notably since the start of the year.

Employment, Unemployment, and Inactivity

• The Labour Force Survey (LFS) shows Scotland’s unemployment rate remained relatively low in the 3‑months to April at 4.3% (UK: 4.9%), albeit had risen by 0.4 percentage points (p.p) over the quarter and 0.1 p.p over the year (UK: +0.3 p.p).
• Alongside this, the employment rate fell 0.5 p.p over the quarter to 74.3%, while the inactivity rate rose 0.1 p.p. to 22.2%. Over the past year, the employment rate has fallen 0.7 p.p. and the inactivity rate has risen 0.5 p.p, indicating a weakening in labour market conditions compared to last year.^[18]

• This weakening is also reflected in Pay as you Earn (PAYE) Real Time Information data which shows that the number of payrolled employees (2.44 million) rose marginally in May (up 1,000), however has fallen 0.3% (c. 7,600) over the year and is at its second lowest level since January 2023.^[19]
• Furthermore, Scotland’s Claimant Count unemployment rate (3.8% in May) remains low relative to the UK as a whole (4.5%), however the number of claimants of unemployment related benefits rose 1.8% (c. 2,000) over the month to 110,200 and is at its highest level since October 2024. Over the past year, the number of claimants has risen by 5.4% (c. 5,600).^[20]

Recruitment Activity

• The weaker labour market is also reflected in recruitment activity. ONS Textkernel data indicates that recruitment activity fell in May with the number of online vacancies 10.0% lower than a year prior. ^[21]
• Similarly, the RBS Growth Tracker indicates that private sector staffing fell for a second consecutive month in May, with the index falling to 48.7 (50 = stable employment levels).^[22]

• Looking ahead, BICS data indicates a higher share of businesses expect employee numbers to increase (14.7%) than to decrease (8.0%). However, most businesses continue to expect employee numbers to remain unchanged (65.6%), with the share increasing since the start of the year and indicating some stabilisation in recruitment against a backdrop of elevated uncertainty in the economic outlook.

Earnings

• In response to the labour market loosening over the past year and lower levels of inflation, the pace of earnings growth had slowed notably towards the end of 2025 and into the new year, however latest data for May continues to show a renewed pick-up in growth in recent months.

• Nominal median monthly PAYE pay in Scotland (£2,669) grew by 5.3% on an annual basis in May, down marginally from 5.5% in April. In real terms, adjusting for annual inflation of 2.8%, real earnings grew by 2.4%, notably above the 1.0% average growth rate of the prior six months. ^[23]