Scottish economic bulletin: January 2026

Overview

This January 2026 edition of the Scottish Economic Bulletin presents the latest data and forecasts for the economy during the fourth quarter of 2025 and into the new year.

Latest GDP data indicates that Scotland’s economic growth in the three months to October was positive, albeit relatively subdued at 0.2%, with September the only month of growth over the 3-month period. Despite its pace of growth easing, the Services sector continued to drive growth over the 3-months, offsetting flat growth in Production and a fall in Construction output. Over the past year, the Scottish economy has grown 1.1% and is broadly similar to growth at the UK level.

Business surveys continue to highlight the challenging business landscape in the final months of the year. The RBS Growth Tracker reported a fourth consecutive month of contracting activity in December alongside further declines in new orders. Indicators of cost pressures also picked up towards the end of the year with higher shares of businesses considering price increases in the face of tightening margins and citing multiple contributing factors, most notably labour costs. However, falling demand continues to be the most reported main concern for businesses, highlighting the challenging environment in which pricing decisions are being made.

As inflation fell further to 3.2% in November and with expectations of it reaching the target rate sooner than previously forecast, the Bank of England cut the interest rate to 3.75% in December. The improving inflation outlook, and loosening financial conditions, supports potential for stronger consumption growth in the year ahead. Despite this, the Scottish Consumer Sentiment Indicator saw a notable fall in November to its lowest level since April, with sentiment weakening across economy, financial and spending indicators.

Labour market conditions have also continued to soften over the second half of 2025, with a fall in the number of payrolled employees while earnings growth has also slowed in nominal terms and fell by 2.1% in real terms over the year to November. Nonetheless, unemployment has remained relatively low and stable, rising slightly to 3.8% in the three months to October, while latest business survey data indicate a greater degree of stability in staffing levels in December.

Looking ahead, the SFC forecasts published alongside the Scottish Budget project Scotland’s economic growth to strengthen to 1.3% in 2026 and 2027, picking-up from growth of 1.1% in 2025. This presents a downgrade to the growth outlook from the SFC’s May 2025 forecast reflecting a downgrade to the productivity outlook in line with that of the OBR. Furthermore, the overall economic outlook remains challenging, with recent events indicating that global geopolitical uncertainty will remain a key global headwind in the year ahead.