Scottish Economic Insights: April 2025

Overview

The beginning of the year has seen a marked rise in global uncertainty, with the US announcing a range of tariffs, many of which have since been paused, and exports to the US from the UK now facing a minimum tariff of 10%. This follows a weak end to growth in 2024, which saw marginal growth in the final quarter of the year, after the economy had begun the year relatively strongly.

Despite this, there have been some encouraging signs at the start of 2025. GDP grew 0.7% in the three months to February despite falling in the month, and inflation fell in both February and March, reaching 2.6%, although it is expected to rise again in the coming months. The Bank of England continued its gradual approach to loosening monetary policy, reducing interest rates to 4.5% in February and the labour market also remained relatively healthy, though continues to loosen.

However, some activity and confidence indicators remain subdued. For business, the Growth Tracker for Scotland fell to 45.6 in March, its lowest level since November 2022. This reflects a range of challenges for the economy. There are the direct challenges of rising costs, in part following the impacts of the UK Budget, which have increased employer National Insurance Contributions and minimum wages, as well the increase in economic uncertainty surrounding US trade policy and the ongoing tensions in Russia, Ukraine and the Middle East. Weaker business activity has been accompanied by a reduction in recruitment activity in response to softer demand and in the face of a recent increase in cost pressures which are weighing on profits.

For households, consumer sentiment has also weakened at the start of the year and remained in negative territory in February, at -5.7. Despite employment remaining broadly stable and earnings continuing to outpace inflation, households continue to report that their finances remain under pressure and that these pressures are expected to persist. Households face a range of price increases, with the energy price cap and other regulated prices increasing in April, as well as increases in Council Tax and water charges. Inflation is expected to increase over the coming months, with the OBR forecasting it to peak at 3.8% in July, however the impacts on future inflation of the recent tariff announcements and financial market volatility remains uncertain.

This recent cooling and increased uncertainty has been reflected in a broad-based downgrade of economic forecasts from the end of last year. Both the Bank of England and the OBR have revised down their UK growth forecasts to average around 1% in 2025. Internationally, the OECD and the IMF have revised down their growth forecasts for almost all members. Forecasts for Scotland will be published at the end of May and will also likely show a weakened outlook. However, despite the uncertainty, there remain some areas of optimism. Investment opportunities in Scotland remain strong. Falling oil prices mean that energy prices may fall back in the second half of the year, and may support further interest rate cuts. And ongoing discussions around trade may deliver both reductions in tariffs and a reduction in uncertainty in the coming months.