Scottish economic bulletin: March 2025

Consumer Activity

Consumer sentiment fell in January, driven by falling sentiment on future economic performance and attitudes towards spending, but has improved from a year ago.

Consumer Sentiment

• The Scottish Consumer Sentiment Indicator reflects how people feel the economy is performing, how secure they feel about their household finances and how relaxed they feel about spending money.
• Consumer sentiment weakened at the start of 2025 following a period of declining sentiment in the latter part of last year. The latest monthly data show consumer sentiment fell by 3.6 points in January to -5.7. This is its lowest level since March 2024, but remains higher than the level reported in January 2024 (-6.7).^[18]

• The fall in sentiment in January was driven by lower sentiment in four of the five sub-indicators of sentiement regarding current and future household financial security, attitudes to spending, and future economic performance. These were partially offset by improving sentiment on current economic conditions.
• Expectations for future economic performance saw the largest fall in sentiment in January, falling by 8.2 points to 0.5, while the attitute to spending indicator fell from -12.6 in December to -18.3 in January. This suggests households are, on balance, less relaxed about spending as their expectations for the economic outlook weakened.
• Sentiment on current economic performance was the only sub-indicator to have improved in January, rising by 0.5 points to -0.4, although it remains in negative territory.

• This pattern of improved sentiment from last year alongside lower economy expectations is in line with sentiment at a UK level, as the GfK consumer sentiment indicator showed slight improvements in sentiment in February 2025 although perceptions on the economy are weaker than last year.^[19]

Spending and Cost of Living

• Retail sales in Great Britain fell 0.6% in volume terms over the three months to January (0.1% rise in value terms) but rose 1.4% annually (1.3% rise in value terms).^[20]
• Lower and more stable inflation and reductions in interest rates are providing improving conditions for consumption, though the full benefits are feeding through gradually, and cost of living challenges are continuing to impact households.

• At a UK level, average monthly direct debit transaction values rose 1.2% over the year to January 2025, driven in part by higher mortgage and loan payments. The average transaction amount for mortgages increased by 7.5% over the year to £973.71, with the pace of growth continuing to ease from during 2024.^[21] The average transaction amount for electricity and gas fell 9% over the year to £162.61 in January. However energy payments have increased slightly from the end of 2024, in part likely reflecting the energy price cap rise.

• Direct debit failure rates due to insufficient funds remain higher than pre-pandemic levels, particularly with respect to direct debits for electricity and gas bills, fitness facilities, and other loans, albeit continue to account for only a small fraction of direct debit transactions. Total direct debit failure rate in January 2025 was 2.21%, in line with rates seen across the second half of 2024 and up from 2.19% in December. Failure rates for, electricity and gas have increased from 1.97% to 2.28% over the year, however direct debit failure rates for mortgages, loans and fitness facilities have fallen.
• In January, the ONS Public Opinions and Social Trends survey showed that 34% of respondents found it very or somewhat difficult to pay their rent or mortgage, up from 30% last month, albeit still down significantly from a peak of 46% in 2023. A third of respondents also expressed the same challenges in paying energy bills.^[22]
• To mitigate the cost of living, households are taking a range of actions, the most commonly reported of which include spending less on non-essentials (reported by 61% of respondents in January), shopping around more (45%), spending less on food shopping and essentials (39%) and using less fuel and energy (39%).
• These figures are largely consistent with the pattern that emerged across 2024, with households actively monitoring their spending while becoming more relaxed about energy and fuel consumption relative to during the energy price shock in 2022. The generally stable response rates likely reflect the continued headwinds the cost of living presents to households, suggesting that it will take time for a stabilising price environment and stronger earnings growth to feed through to consumer behaviour.