Scottish economic bulletin: December 2025

Overview

This final Scottish Economic Bulletin for 2025 presents latest data for the economy during the third quarter of the year and latest indications of activity and sentiment into the fourth quarter.

The latest GDP data indicates that the pace of economic growth in Scotland in the third quarter remained slightly slower than at the start of the year. GDP grew 0.2% over the quarter, unchanged from the second quarter. As has tended to be the pattern so far in 2025, growth was driven by the services and construction sectors, offsetting falling output in the production sector.

Looking ahead to the fourth quarter, business surveys tend to indicate that business activity has remained subdued. The RBS Growth Tracker for November reported that business activity contracted for a third consecutive month, with businesses on balance continuing to report a fall in incoming new orders. This is more broadly reflected in the fact that businesses continue to report falling demand as their main concern, which combined with strong competition and elevated input cost pressures, presents a challenging environment for sustaining profit margins.

Despite this, business optimism picked-up in November, with hopes of demand conditions improving. The fall in inflation to 3.6% in October and increased expectations of inflation continuing to gradually decline in 2026, alongside further gradual cuts to interest rates, certainly has the potential to provide a stronger basis for consumption growth going forward. The Scottish Consumer Sentiment Indicator remained in negative territory in October, however strengthened to its highest level since May, partly driven by an improvement in the attitude to spending indicator.

However risks to consumption remain and weakness in demand is reflected in the labour market which has softened over the past year. Unemployment in Scotland remains low at 3.7%, however the number of payrolled employees has fallen by 15,500 (0.6%) over the past year and business survey data indicates further slight reductions in staffing levels in November. Furthermore, earnings growth has also softened and was flat in real terms in October. This edition of the bulletin provides an update on public sector pay trends in Scotland and the UK.

Overall, the economic outlook for the year ahead remains challenging, both domestically and internationally. Data and economic sentiment suggest growth in Scotland continues to be constrained by consumer expectations which is feeding through to expenditure and demand for services. This can change quickly and may provide an upside for growth at the end of 2025 and into the new year.

The OBR forecast UK growth to slow slightly to 1.4% in 2026 and average 1.5% over the forecast period, in part reflecting recent downgrades to underlying productivity growth. This edition of the bulletin provides analysis on the adoption of AI and its potential influence on the economic outlook. The SFC will update Scotland’s economic forecasts in January alongside the Scottish Budget.