Scottish economic bulletin: February 2024

Economic Outlook

Economic conditions are forecast to improve with stronger growth and lower inflation.

• The outlook for economic growth in 2024 remains subdued however is expected to strengthen, while broader economic conditions are also improving. Inflation is forecast to fall below 3% over the year and low unemployment coupled with the recent improvements in sentiment and real earnings growth provide a stronger foundation for the improved growth outlook.
• In December, the Scottish Fiscal Commission forecast Scottish economic growth to strengthen from 0.1% in 2023 to 0.7% in 2024, rising to 1.1% in 2025. This is broadly in line with the OBR forecasts for the UK economy for growth of 0.7% in 2023 rising to 1.4% in 2024.^[20],[21]

• Most recently in February, the Bank of England forecast UK GDP to grow 0.25% in 2024 rising to 0.75% in 2025. The Bank also forecast inflation to fall from its current rate of 4% to temporarily meet the 2% target in Q2 2024, before rising to 2.7% in Q4 2024 and to 2.5% by the end of 2025 reflecting the persistence of domestic inflationary pressures.^[22]

• The Bank of England, alongside the US Federal Reserve and the European Central Bank, have continued to retain a restrictive monetary policy position with Bank Rate held at 5.25% since August. However, markets expect the Bank Rate to fall more quickly than previously anticipated, falling from 5.25% to around 3.25% by the start of 2027.
• Overall, the resilience in economic output and the labour market, coupled with declining inflation pressures over the year has been positive. Business activity has weakened further in the final quarter of the year, however the resilience of business and consumer sentiment, low unemployment, real earnings growth and falling inflationary pressures provide an improved basis for the stronger growth forecast for 2024.