Tag: Scottish economy

Fraser of Allander: Optimism fades as economists downgrade growth forecasts for Scottish economy

The outlook for the Scottish and UK economies has weakened, with growth now expected to remain sluggish through the rest of 2025.

In its latest quarterly Economic Commentary, the Institute has downgraded its forecasts for Scottish economic growth to 0.8% in 2025 and 1% in 2026.

This comes despite more upbeat projections from both the Scottish Fiscal Commission (SFC) and the Office for Budget Responsibility (OBR), which have recently upgraded their expectations for 2026 whilst similarly revising down their GDP forecasts for 2025.

Economic growth is now slowing compared to the start of the year and inflation has also edged up to 3.4%, after staying below 3% throughout 2024.

The business environment is also showing signs of strain, with companies reporting cutting back on activities in the first quarter compared to last year, plagued by rises in National Insurance Contributions, which took effect in April, alongside uncertainty surrounding President Trump’s trade tariffs. Indeed, pay growth and employee numbers are down, signalling potential weaknesses in the labour market.

The current state of the economy was not unexpected: Institute Director Professor Mairi Spowage warned of turbulent and uncertain conditions which could last throughout the year in the previous commentary.

Professor Spowage said: “After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago.

“Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.”

In addition to the latest economic analysis, the commentary provides an overview of Universal Credit and Legacy Benefits in Scotland, a key element of the nation’s social security system, and summarises key takeaways from June’s spending review and medium-term financial strategy.

Dr Joao Sousa, Deputy Director of the Institute, said: “The fiscal announcements by both governments suggest that there are significant economic challenges in the years and months to come for the UK and Scottish Governments.

“Particularly from 2027-28 onwards, the choices of Government look to become more difficult. Of course, this is the role of the Government in power: but the difficulties of the UK Government this week show that events can quickly derail its plans.”

Read more here.

The Scottish Conservatives reckon they know where the problem lies …

The Fraser of Allander Institute has downgraded Scotland’s growth forecast.

The SNP’s anti-business policies and high-tax agenda are having a detrimental impact on the economy.

Is the Scottish economy really growing at FOUR times the rate of the UK?

The big political news of the week in Scotland was undoubtedly the further disputes about the Scottish Government’s troubled Deposit Return Scheme (writes Fraser of Allander Institute’s MAIRI SPOWAGE).

This followed the decision by the UK Government to allow the scheme in Scotland to proceed, granting a “temporary and limited” exemption from the Internal Market Act, but only if the Scottish scheme excluded glass – and therefore include PET plastic, aluminium and steel cans only.

The justification from the UK government’s point of view is that the exemption is temporary only until UK-wide schemes are introduced (planned to be in 2025); and that the exemption does not include glass because the scheme that the UK Government are planning to introduce does not include glass.

The Scottish Government have made it clear, through a statement by the responsible Minister Lorna Slater on Tuesday, that this may mean that the scheme as designed in Scotland is not viable. The SG are now examining the implications of how and if the scheme can proceed on this basis.

If the decision by the SG was to scrap the scheme, or even to proceed without glass, there are likely to be calls for significant compensation for the businesses who have invested money to comply with the scheme, including the glass elements.

This is not just an issue about DRS, or actually about Scotland. Wales had also planned to introduce a similar scheme, also including glass, and Mark Drakeford intervened yesterday to say that he would “dispute the use of the internal market for these purposes”, flagging that the UK Government had also initially planned to include glass in their scheme.

This row is now firmly in the area of constitutional grievance, with both the Welsh and Scottish Governments accusing the UK Government of meddling in devolved areas. We await to see how the Scottish Government will respond, but it is likely to include significant condemnation of the UK government no matter which course of action is chosen.

More questions over the cost of the National Care Service

While the fate of the National Care Service overall is uncertain, despite the new First Minister reiterating his commitment to the idea in recent weeks, there have been further exchanges between the Finance and Public Administration Committee at Holyrood and the Minister responsible Maree Todd.

In a letter published on Tuesday, the acting convener Michael Marra MSP has outlined the displeasure of the committee at not being given any more details of the costs of the scheme, given the formal role that this Committee has in scrutinising Financial Memorandums which accompany legislation and the fact they had formally requested more information after what they saw as an inadequate first draft.

A deadline of 21st June for the Minister to respond – watch this space for updates!

Scotland’s economy growing faster than the UK in recent months

This week the Scottish Government published monthly data for March, which also meant they published the first estimate of quarterly growth for Scotland. This showed that Scotland had grown 0.4% in the four months to March, compared to 0.1% for the UK as a whole.

This led to headlines saying “Scottish economy grows at four times rate of the UK” and the like.

As folks who comment a lot on this sort of data, our heart sinks a little when seeing the growth figures being described like this. Yes, 0.4 is 4 times the size of 0.1. (Although to be technical, the figures are actually 0.13 and 0.36 – so not quite). But headlines like this somewhat exaggerate the meaning of such a difference in a quarterly figure and what it tells us about economic performance in Scotland vs the UK.

Digging under the data, the differences mainly come from the figures from March itself, where we see a contraction in the UK figure – driven by a contraction in consumer-facing services. It is really interesting to see these services in Scotland holding up a bit better, at least according to this first estimate of monthly growth.

 ScotlandUK
Monthly growth to March0.0%-0.3%
Quarterly growth to March0.4%0.1%
Annual Growth to March2.1%1.9%
Growth since pre-pandemic level (Feb 2020)1.2%0.1%
Growth over the last 5 years1.6%2.6%
Growth over the last 10 years9.8%15.5%

If we look over the last year, Scotland still performs better – growing at 2.1% compared to 1.9% at the UK level. Although, we should all be aware that such differences could change as data get revised.

Over the longer term, we can see that growth in Scotland has been more muted – driven partly by the oil price shock in 2015/16, and also over the medium term in the differences in population growth in Scotland compared to the UK average.

We’ll continue to dig under these data to understand more about differential economic performance in Scotland and the UK!

Summer has definitely arrived over the last week, and I’m sure we won’t be the only ones cracking out the barbeque this weekend. Enjoy the sunshine (with the factor 50 on, of course)!