Scottish economic bulletin: March 2025

Overview

Scottish economic growth strengthened in 2024 with output rising 1.1% over the year following 0.5% growth in 2023. However it was a year of two halves with the pace of growth slowing notably in the second half of the year – similar to the UK as a whole – and business and consumer surveys indicate that uncertainty continues to be a concern for economic activity in the early part of 2025.

Most recent data show Scottish GDP growth was flat (0.0%) in the fourth quarter of 2024, down from 0.4% growth in the third quarter. The Services sector continued its trend of positive growth over the quarter (0.2%), albeit at a more moderate pace than in the third quarter while Construction grew 0.5% and, in contrast to the other key sectors, was stronger than in the first half of the year. Growth was offset however by a 1.1% fall in Production which followed flat growth (0.0%) in third quarter.

Business surveys also reported weaker private sector activity in the fourth quarter of 2024. The RBS Growth Tracker indicated that some of this weakness carried into the new year with a further slight fall in business activity in January, in part driven by a fall in new work demand. Falling demand for goods and services remains the most reported concern for businesses in March. The Scottish Consumer Sentiment Indicator remained in negative territory in January, falling 3.6 points to -5.7, mainly reflecting weaker sentiment regarding spending and the economic outlook.

Combined, this indicates a risk of further subdued demand at the start of the year and wider business survey indicators suggest this is feeding into weaker recruitment intentions. That said, the labour market continues to perform strongly, with the unemployment rate at 3.8% and payrolled employment remaining high and increasing slightly in January 2025. The pace of earnings growth also remained robust in January, rising 5.2% nominally and 2.2% in real terms.

Inflation has increased slightly again in recent months with the inflation rate rising to 3% in January. The short term inflation outlook remains uncertain and may be volatile, as previous price increases drop out of the annual measure and are replaced by increases to energy and other regulated prices. The Bank of England has forecast inflation to rise to 3.7% in the second half of 2025. Despite this upward inflation trend in the short term, the reduction in the Bank Rate in February from 4.75% to 4.5% reflects both wider uncertainty about UK growth outlook and the generally more stable inflation outlook beyond this year. The path and pace of future base rate changes are likely to be influenced as much by economic sentiment and uncertainty as price changes.

Scotland’s GDP growth is forecast to strengthen in 2025, although the current weakness in business and consumer sentiment presents downside risks, as does geopolitical uncertainty impacting trade or investment. However, the combination of fiscal stimulus and looser monetary policy has the potential to strengthen business and consumer activity over the coming year.