Scottish economic bulletin: May 2025

Economic Outlook

Economic growth forecasts have been downgraded from last year reflecting downside risks from global trade uncertainty.

• The economic outlook for 2025 has been notably impacted by the recent developments in global trade tensions and increased economic uncertainty.
• In December 2024, the Scottish Fiscal Commission (SFC) forecast Scottish GDP growth to strengthen to 1.5% in 2025 and to 1.6% in 2026, up from 1.1% in 2024. The SFC will update their economic forecast at the end of May, which is likely to show a more moderate outlook, reflecting a similar pattern of downward revisions published more recently for UK and global growth. In April, The Fraser of Allander Institute (FAI) revised their growth forecasts for Scotland to 0.9% for 2025 (previously forecast at 1.3%) and to 1.1% for both 2026 and 2027.^[22],[23]
• At a UK level, the latest Bank of England’s Monetary Policy Report (MPR), published in May, forecast UK GDP to grow by 1% in 2025, broadly stable from 2024, before picking up to 1.25% in both 2026 and 2027. This reflects a slight upward revision for the growth forecast of 2025 (from 0.75% in their previous MPR), building on the pick-up in GDP growth at the start of the year. For 2026 and 2027, the latest MPR shows a downward revision from growth rates of 1.5% in both years.^[24]
• Similarly, the latest HMT average of new independent UK forecasts shows that UK GDP growth is expected to moderate slightly to 0.8% in 2025 before strengthening to 1.0% in 2026.^[25]

• This is set against a global backdrop in which the OECD and the IMF have recently revised down global growth forecasts. The OECD project global growth of 3.1% for 2025 (down from 3.3%) and 3.0% for 2026. The IMF forecasts are 2.8% (down from 3.3%) for 2025 and 3.0% for 2026 (down from 3.3% as well).^[26],[27]
• Inflation is expected to remain lower than in recent years, although the recent developments in the global trade market and the uncertainty surrounding these add a high degree of uncertainty to the inflation outlook.
• The Bank of England’s baseline forecast is for inflation to temporarily rise to 3.5% in Q3 2025 before gradually falling back to the 2% target in Q1 2027. Compared to the Bank’s previous forecast in February, inflation is expected to peak lower and be less persistent. Furthermore, the latest HMT average of new independent UK forecasts indicate inflation will average 3.1% in 2025 before falling to 2.3% in 2026.
• Overall however, there are notable risks in both directions to the inflation outlook over the next few years reflecting the range of potential impacts of global trade developments and uncertainty on demand and the persistence of inflationary pressures.