Scottish economic bulletin: October 2025

Overview

This month’s Scottish Economic Bulletin presents latest data for the economy during the third quarter of the year.

Following a slight slowdown in growth during the second quarter, latest data indicates that the economy rebounded in the 3-months to July, strengthening from 0.2% to 0.5%. The pick-up in growth was driven in part by stronger growth in the services sector, although within this, the hospitality and retail sectors slowed over the 3-months, continuing to reflect underlying weakness in consumer sentiment.

The Scottish Consumer Sentiment Indicator rose 0.7 points in August, however it remains negative and has fallen nine points over the past year with consumers remaining particularly concerned about their household financial security and about spending money. This may in part reflect that annual real earnings growth for payrolled employees has slowed slightly from 2024, albeit that it picked up to 2.8% in August, while inflation is forecast to rise to around 4% this year and persist above the 2% target until 2027.

A drag on growth continues to come from the manufacturing sector in which output fell 2.9% over the 3-months to July and 4.7% over the year. Most recently, this partly reflects the cessation of oil refining activities at Grangemouth at the end of April, however more broadly, business conditions remain challenging.

The Scottish Growth Tracker indicated that new business orders fell for a twelfth consecutive month in September while input cost pressures further accelerated, in part due to higher labour costs. Despite this, the business output price indicator has fallen to its lowest level since 2020, potentially reflecting the concerns that businesses currently have about fragile demand and their ability to pass on higher costs.

The labour market continues to perform strongly overall with unemployment remaining low at 3.9%. There continues to be signs that underlying labour market conditions have softened slightly over the past year with the number of payrolled employees falling by 10,900 (-0.4%) annually. However recent business survey and vacancy data indicate that recruitment activity may have stabilised and picked up slightly in recent months, with payrolled employment stabilising. This may in part reflect that business optimism for the year ahead has been more resilient recently despite the current weakness in new business and persistence of cost pressures.

Economic uncertainty remains elevated at both a domestic and international level however, and both consumers and businesses will be keeping a keen eye on the forthcoming UK Autumn Budget to understand how any fiscal changes may further impact on their finances as well as the growth expectations for the economy.