Scottish economic bulletin: August 2025

Overview

The latest data on the economy continues to indicate that the pace of economic growth has softened from earlier in the year, while inflation unexpectedly increased in July and consumer sentiment has continued to weaken. However, the labour market continues to perform strongly with low unemployment and, while business conditions remain extremely challenging, some business activity and optimism indicators have improved slightly.

Scotland’s economic growth picked-up during the first quarter of 2025, however latest data for the 3-months to May indicate that the underlying pace of growth has eased with output falling by 0.4% over the period. This means the economy has grown 0.2% on an annual basis but currently remains at the same level as it did in the final quarter of 2024. The recent fall in output was mainly driven by a fall in Production output, which was in part impacted by the cessation of oil refining activity at Grangemouth at the end of April. In the Services sector, growth strengthened slightly in the 3-months to May, supported by stronger growth in accommodation and food services, but was marginal overall, while growth in the Construction sector picked up to its fastest rate since July 2024.

The weakness in GDP growth is reflective of ongoing challenging conditions for business and consumers. The RBS Growth Tracker for June shows that the business activity indicator has been subdued since the start of the year relative to 2024, however it has strengthened for a third consecutive month. Underlying demand conditions do remain challenging though and businesses are continuing to report falling new work orders and cite weakening demand as a key concern.

This in part reflects the current weakness in consumer sentiment and attitudes to spending. The Scottish Consumer Sentiment Indicator fell 1.5 points in June and remains firmly in negative territory reflecting household’s concerns regarding the economy and their household finances. Despite these weaknesses, looking ahead, households expect economic performance to improve over the next year and the RBS Growth Tracker indictor of business optimism continued to improve in June, albeit from a low base at the start of the year.

However, domestic and international headwinds continue to weigh on the outlook for this year. Inflation unexpectedly increased in June to 3.6% and is forecast to temporarily rise further over the coming months. This has slowed the pace of real earnings growth in recent months. More broadly the labour market continues to remain resilient despite the slight fall in payrolled employees over the past year to June (-0.6%) with unemployment rates remaining around 4 per cent which are historically low.

At a global level, headwinds arising from trade uncertainty and geopolitical tensions continue to present downside risks to the economic outlook.