Experts downgrade forecast for Scottish economy amid ‘turbulent’ conditions

Experts have downgraded forecasts for Scotland’s economy amid warnings that conditions will be “turbulent and uncertain”.

The Fraser of Allander Institute said the start of 2025 had seen “growing unease”, with the think tank saying firms were preparing for “rising costs and escalating geopolitical tension – most notably, the introduction of trade tariffs by US President Donald Trump”.

The Strathclyde University based think tank also used its latest economic commentary to highlight concerns about the impending rise in employer national insurance contributions.

These increase on April 6, with the think tank saying there are now “growing concerns that economic growth could remain sluggish in the near term”.

And while it had forecast in January that Scotland’s economy would grow by 1.3% in 2025, and then by 1.2% in 2026, the April commentary downgraded these.

Economic growth of 0.9% is now expected this year, with 1.1% forecast for 2026.

The think tank said the change was due to “ongoing concerns over global economic fragility, tighter UK fiscal policy, and lingering inflationary pressures”.

Professor Mairi Spowage, director of the Institute, stated: “Economic conditions in 2025 are turbulent and uncertain, and are likely to remain so throughout the year.

“Therefore, the picture is still one of subdued growth. Many of the challenges businesses faced in 2024 – from rising costs to policy uncertainty – have not gone away.”

She added that additional pressures from the hike in employer national insurance charges, together with geopolitical instability “risk dampening confidence and growth further”.

Professor Spowage added: “These tax changes will start to hit businesses next week, with many scaling back plans for workforce expansion and recruitment as a result.”

Her comments came as data from the institute’s Scottish Business Monitor showed that 94% of firms expect cost pressures to increase in the first half of 2025, with three in four businesses highlighting the national insurance changes as a significant concern.

And although UK headline inflation fell to 2.8% in February, the think tank said this was “unlikely to bring significant relief to Scottish households”.

It said that services inflation, which covers the change in costs for services, was still “elevated” at 5%, as it warned that “further price increases are expected to strain household budgets”.

Deputy first minister Kate Forbes said the think tank’s forecast “reflects the difficult economic landscape we are facing across the UK”, adding that the warning of further potential price rises would “be concerning to households and businesses”.

Forbes said: “The threat of further trade tariff increases, the cost-of-living crisis and the unwelcome rise in employer national insurance contributions present real challenges for our economy.

“I would encourage the UK Government to think carefully about any further measures which could damage our economy or push more people into poverty, such as its planned welfare cuts.”

The deputy first minister said she is “focused on providing policy certainty and delivering growth with the limited powers the Scottish Government holds”.

She added: “Already this year we have seen significant investments in a subsea cable manufacturer in Ayrshire and new infrastructure at the Port of Montrose, unlocking opportunities in the rapidly-growing offshore wind industry.”