Scottish economic bulletin: November 2025

Overview

The Scottish economy has continued to show resilience into the second half of the year in the face of notable persistent headwinds. Economic growth has remained positive and unemployment is low, however underlying weakness in business activity and consumer sentiment in the face of uncertainty, particularly in the run up to the UK Budget, indicates that growth in the second half of the year could remain subdued.

Following slower growth in the second quarter of the year (0.2%), economic growth picked up in the 3-months to August to 0.7%, its highest rate since May 2024. Growth continued to be driven by the services and construction sectors offsetting falling production output, particularly in the manufacturing sector. However, with output falling over the months of July and August, growth over the third quarter as a whole is likely to be weaker than the latest 3-monthly data currently indicates.

Alongside this, business surveys show that business activity and new business orders have contracted in the third quarter of the year in the face of weaker domestic demand. The Scottish Consumer Sentiment Indicator remained negative at -8.1 in September and has fallen 2.4 points since the start of the year, reflecting the ongoing concern that consumers have about their household financial security and spending money.

There are a number of factors which may underly this caution. Inflation has picked up this year and rose to 3.8% in September, albeit that this was below expectations and the Bank of England judge that it may now have peaked. Alongside this, fiscal uncertainty in the lead up to the UK Budget and potential changes to taxation may also be impacting. The resulting weakness in demand has continued to be the main concern for businesses during the third quarter.

Furthermore, the labour market has softened over the past year. Unemployment in Scotland remains low at 3.7%, however has picked up to 5% at a UK level, while the number of payrolled employees in Scotland is showing signs of weakening having fallen by 15,500 (0.6%) over the past year. Earnings growth has also softened, however the gradual reduction in interest rates we have seen this year has been feeding through to improved financial conditions.

Business optimism for strengthening demand has remained resilient this year in the face of these challenges, however the Growth Tracker business survey indicated that this had softened going into the fourth quarter. Latest forecasts expect UK growth to soften slightly in 2026, in part reflecting the weakness in global growth. Furthermore, the OBR UK economy forecasts later this month are expected to show a weaker economic outlook, and a challenging fiscal outlook for the UK Budget.

This month has also seen the Scottish Government announce its first credit rating, which provides an independent assessment of the performance of the economy and public finances, with Scotland ranked at parity to the UK. This month’s bulletin summarises the business case for Bond Issuance.