Confidence weakens amid caution over data gaps – Daily Business

A tentative recovery among Scottish businesses has been replaced increasing pessimism about the economic outlook.

Ahead of the Chancellor’s November budget, four out of five firms expect weak to very weak growth over the next 12 months, according to the University of Strathclyde’s Fraser of Allander Institute.

Despite the downbeat assessment, the Institute has uprated its 2025 forecast from 0.8% to 1%, but only because it comes off poor growth over the last year.

The survey follows PMI data published yesterday which suggests the British economy is now growing at a sluggish sub 1% rate, even as inflation is stuck at around 4%, indicating a shift to stagflation.

A current concern among analysts and forecasts is the unreliability of labour market statistics which are obscuring the true picture of employment and economic inactivity, posing a challenge for policymakers.

Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “Scotland’s economy continues to face a fragile recovery, held back by uncertainty and data gaps that make it harder to target the right policy responses.

“Restoring business confidence and improving the quality of economic evidence must be central to future decision-making.

The commentary also highlights growing concern about the quality of official labour market statistics, which have faced significant disruption in recent years.

The Office for National Statistics (ONS) suspended its Labour Force Survey between October 2023 and February 2024 because of low response rates. While data collection has since resumed, average sample sizes remain around 40% below pre-pandemic levels, and regional labour market statistics have not yet regained their official accreditation.

Analysis by Strathclyde researchers at the Scottish Health Equity Research Unit (SHERU) suggests that official data may be misrepresenting recent trends in employment and inactivity.

While ONS figures indicate that inactivity has fallen, SHERU’s modelling shows a slight increase of around 32,000 people year-on-year.

Emma Congreve, Deputy Director of the Fraser of Allander Institute and Co-Director of SHERU, said: “Reliable data is the foundation of good policymaking, but right now Scotland’s labour market picture is blurred. The ONS has made progress, but significant gaps remain – particularly at regional level, where the data quality is poorest.

“We are urging policymakers to interpret headline statistics with caution and to recognise that key labour market challenges could be more persistent than current data suggests.”