Scottish economic bulletin: February 2026

Economic Outlook

The Scottish economy is forecast to strengthen in 2026 as global uncertainty remains elevated.

• Global economic growth is forecast to remain steady in 2026 with the IMF forecasting growth to remain unchanged at 3.3% in 2026 before easing slightly to 3.2% in 2027. The resilience in the pace of growth is in part supported by less restrictive monetary policy as inflation continues to moderate. Global inflation is forecast to fall from 4.1% in 2025 to 3.8% in 2026.^[24]
• However the increase in global geopolitical risk and continued elevation in world trade uncertainty in January indicates that these factors remain key downside risks for the year ahead and have the potential to disrupt demand and supply chains and weigh on investment intentions.
• The increase in risks in the short term has been evident in financial and commodity market movements in January which has seen the price of gold rise above $5,000 an ounce while there has also been upward pressure on oil prices, in part due to the increase in tensions and potential of military action in Iran. These have partly reflected short term market reactions, with indications that some of the immediate tension has eased, albeit the underlying risks remain elevated.

• At a UK level, in February the Bank of England forecast UK GDP growth to slow from 1.4% in 2025 to 0.9% in 2026 before strengthening to 1.5% in 2027 and 1.9% in 2028. Subdued growth in 2026 reflects the persistence of weak demand, uncertainty and a slight drag from past monetary tightening and is expected to be reflected in further loosening in the labour market and unemployment rising to 5.25% during the year.^[25]
• Inflation is expected to fall to around the 2% target rate in April, largely reflecting UK Budget announcements on administered prices and indirect taxes. Markets currently expect interest rates to fall by a further 0.5 percentage points during the year which is expected to support the pickup in growth in 2027 and 2028.
• Looking at a broader set of forecasts, the latest HMT average of new independent UK forecasts in January showed that UK GDP growth is projected to weaken from 1.4% in 2025 to 1.0% in 2026.^[26]

• The Scottish Fiscal Commission (SFC) published their latest forecasts for the Scottish economy alongside the Scottish Budget on 13 January. Following expected growth of 1.1% in 2025 the SFC forecast Scottish GDP growth to strengthen to 1.3% in both 2026 and 2027. ^[27]

• Most recently in February, the Fraser of Allander Institute forecast a similar outlook for growth of 1.1% in 2026 rising to 1.2% in 2027.^[28]
• Overall, the outlook for stable growth in 2026 and 2027 alongside lower inflation and loosening monetary conditions, presents a positive outlook for the economy which has been reflected in recent improvements in business and consumer confidence, albeit from a low base. However the loosening in the labour market over the past year and the ongoing weakness in demand conditions, in part relating to ongoing cost pressures, remain a risk to the growth outlook. Furthermore, the increase in global geopolitical risk and continued elevation in world trade uncertainty at the start of the year continues to emphasise the risk of further escalations during the year and the challenges this could present for trade and investment decisions.