Scotland's economic performance has, on balance, strengthened in the first half of 2017. This follows a challenging 2016 which saw a combination of headwinds impact on growth.
Over the first six months of 2017, GDP growth was broadly in line with the UK as a whole with broad based growth across the Services sector the main driver of growth over the period. The Production sector has grown for the first time since the start of 2015, supported in part by the low value of Sterling supporting exports and the pick-up in economic sentiment and outlook in the oil and gas sector, as evidenced by industry surveys.
Scotland's labour market continues to perform strongly. The number of people in employment is close to its record high, whilst the unemployment rate is near its lowest rate since current records began in 1992. The continued growth in employment in Scotland has been driven by two trends. Firstly, there has been a rise in full-time employment by 55,000 over the past year, whilst part-time employment has fallen by 15,000. Secondly, self-employment has grown by 23,000 over a broad range of occupations, including construction, finance, distribution, hotels and restaurants.
The acceleration in inflation resulting largely from the depreciation of Sterling following the EU referendum has squeezed households' spending power, with growth in earnings in 2017 not keeping pace with prices. The MPCs decision to increase the Base Interest Rate to 0.5% in November represents the first rate rise for a decade. While the Base Rate remains exceptionally low and effectively returns to its pre-EU referendum rate where it remained unchanged for seven years, this potentially marks the start of a gradual process of returning interest rates closer to their pre-financial crises levels.
The response of consumers to these changes in the economic outlook will be key to determining Scotland's future economic prospects. This edition of the State of the Economy therefore provides new analysis of consumer lending in Scotland. It also provides further information on a new statistical release now being published by the Scottish Government tracking consumer sentiment in Scotland. Both of these indicators will be important in assessing Scottish households exposure to a rise in interest rates, and the wider impact that it has on consumer confidence.
The outlook for the Scottish economy is similar to that presented in June with independent forecasts indicating growth of around 1% in 2017 and 2018. Brexit remains the key risk to Scotland's economy, particularly to business and consumer sentiment. The Scottish Government's Draft Budget on 14 December will be accompanied by the first forecasts prepared by the Scottish Fiscal Commission, providing their official assessment of the outlook for key macroeconomic and fiscal indicators for Scotland.