Scottish economic bulletin: March 2025

Economic Outlook

Scotland’s GDP growth is forecast to strengthen in 2025, however, uncertainty remains elevated at the start of the year.

• Scotland’s economic outlook for 2025 is for stronger GDP growth and more stable inflation than in 2024, however downside risks remain. In December, the Scottish Fiscal Commission forecast Scottish economic growth to strengthen to 1.5% growth in 2025 and 1.6% in 2026. In the short term growth is forecast to be supported by a more expansionary fiscal policy stance. Most recently in January, the Fraser of Allander Institute forecast a similar outlook with growth forecast to strengthen to 1.3% in 2025 before slowing to 1.2% in 2026.^[23],[24]
• At a UK level the latest HMT average of new independent forecasts suggest UK growth of 1% in 2025 rising to 1.4% in 2026. The Bank of England in their latest monetary policy report (MPR) for February expect slightly weaker growth in 2025, 0.75%, with growth increasing to 1.5% in 2026. For both sets of projections, the forecast for growth in 2025 has been revised downwards from forecasts in the fourth quarter of 2024.^{[25] [26]}

• Inflation is expected to remain lower than in recent years, though the path for inflation remains uncertain and may be volatile on a monthly basis.
• The Bank of England’s MPR forecasts inflation to rise from its current rate of 3% to 3.7% in Q3 2025 before gradually falling back to the 2% target in Q4 2027. Compared to the Bank’s previous forecasts, inflation peaks at a higher rate and takes longer to return to target, due to higher energy costs and increases in regulated prices. However, the latest HMT average of new independent UK forecasts suggest inflation will fall to 2.8% in Q4 2025 before falling to 2.3% in Q4 2026.
• Longer term, uncertainty in the outlook for inflation continues to partly reflect recent global developments which present inflationary risks arising from ongoing geopolitical tensions and the introduction of tariffs by the US or by other countries in response.