Scottish economy growth forecasts cut by think tank

The Herald Scotland

04-07-2025

It notes the growth forecasts have been 'revised down to reflect economic conditions in both the UK and the world economy, particularly given the weakening growth that we have seen in March and April'.
Fraser of Allander is now forecasting the Scottish economy will grow by 0.8% this year and expand by 1% in 2026. In its previous commentary, published in April, it had predicted growth of 0.9% in 2025 and expansion of 1.1% next year in Scotland.
The research institute said: 'Our latest forecasts reflect greater uncertainty and difficult economic circumstances.'
It noted other forecasters had increased gross domestic product growth projections for Scotland and the UK next year, while cutting expectations for 2025.
Fraser of Allander said of the reductions in its predictions for the Scottish economy for both years: 'This comes despite more upbeat projections from both the Scottish Fiscal Commission and the Office for Budget Responsibility, which have recently upgraded their expectations for 2026 whilst similarly revising down their GDP forecasts for 2025.'
The research institute has held its Scottish growth forecast for 2027 at 1.1%.
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Fraser of Allander noted the Scottish Fiscal Commission in May forecast the economy in Scotland would grow by 1.1% this year, before expanding by 1.8% and 1.7% respectively in 2026 and 2027. The Scottish Fiscal Commission had in December forecast 1.5% growth this year, with expansion of 1.6% and 1.4% respectively in 2026 and 2027.
The OBR in March halved its forecast for UK growth in 2025 to 1%, having last October projected expansion of 2% for this year. It raised its prediction of UK growth in 2026 from 1.8% to 1.9% in March, while increasing its forecast of expansion in 2027 from 1.5% to 1.8%.
Fraser of Allander said: '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.'
Mairi Spowage, director of Fraser of Allander, 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.'
João Sousa, deputy director of Fraser of Allander, 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.'
Fraser of Allander said: 'Our forecasts demonstrate the continuing challenge for policymakers of combined slow growth and spending pressures. Through the second half of the year, we'll be watching the Scottish and UK budget processes closely to see how policymakers are balancing short-term pressures with long-term considerations.'