Scottish economic bulletin: June 2026

Economic Outlook

The conflict in the Middle East continues to weigh on the economic outlook, generating upward pressure on energy prices and uncertainty.

• At a global level, the IMF downgraded its global economic growth forecast in April due to the conflict in the Middle East to 3.1% in 2026 (from 3.3% previously) while it remained unchanged at 3.2% for 2027.^[22]
• The impact of the conflict on the economic outlook remains uncertain and will depend on its duration and the extent to which energy supply chains remain constrained and impact on wider economic channels.
• At a UK level, the Bank of England downgraded its UK GDP growth forecasts in April, and reflecting the scale of uncertainty, set out three illustrative scenarios on how the conflicts impact on energy prices could feed through the economy. All three scenarios present a downgrade in the growth outlook compared to the Bank’s February forecast, with the milder scenarios (A and B) showing growth to slow to 0.8% in 2026 and 1.0% in 2027 and the more severe scenario (C) indicating growth could slow to 0.7% in 2026 and 0.8% in 2027.^[23]
• More broadly, the latest HMT average of new independent UK forecasts shows GDP is projected to slow to 0.9% in 2026 (down from 1.1% forecast in February) before picking up to 1.1% in 2027.^[24]

• In January, the Scottish Fiscal Commission (SFC) forecast GDP growth in Scotland to be 1.3% in 2026 and 2027. However, the conflict presents a downside risk to the growth outlook. More recently in April, the Fraser of Allander Institute (FAI) downgraded their growth forecasts of Scottish GDP growth from 1.1% to 0.9% in 2026 and from 1.2% to 1.0% in 2027.^[25],[26]
• The outlook for inflation has changed significantly from projections earlier in the year although at this stage has a high degree of uncertainty. The Bank of England’s milder scenarios (A and B) illustrated UK inflation peaking in Q4 2026 at 3.6% and 3.7%, respectively, while the more severe scenario (C) projected inflation peaking at 6.2% in Q1 2027.

• The HMT average of new independent forecasts shows more broadly that inflation projections have been revised up to 3.6% for 2026, from 2.2% projected in February prior to the conflict.
• Overall, the key area of uncertainty for the inflation outlook at this stage remains the restriction on oil and gas supply chains through the Strait of Hormuz and its impact on global energy prices. Direct impacts on domestic fuel prices and household energy prices are expected to continue developing through this year, however the extent to which these spillover and impact on wider channels of the economy remains critical to the overall economic outlook.