Scottish economic bulletin: February 2025

Economic Outlook

Growth is forecast to strengthen moderately in 2025.

• The economic outlook for 2025 is for stronger GDP growth and more stable inflation than in 2024, however there remain downside risks.
• In December, the Scottish Fiscal Commission forecast Scottish economic growth to strengthen from 1% growth in 2024 to 1.5% growth in 2025 and 1.6% in 2026. Most recently in January, the Fraser of Allander Institute forecast a similar outlook with growth forecast to strengthen from 0.9% in 2024, to 1.3% in 2025, however then slow to 1.2% in 2026.^[21],[22]
• This pattern of stronger growth in 2025 is expected more broadly at a UK level with the Office for Budget Responsibility forecasting UK GDP growth of 1.1% in 2024, rising to 2% in 2025 and 1.8% in 2026. The latest HMT average of new independent UK-wide forecasts also indicates growth will strengthen, rising from 0.8% in 2024 to 1.2% in 2025.^[23],[24]

• Alongside the stronger growth outlook, the inflation outlook for 2025 remains more stable than it has been in recent years, albeit that inflation is expected to remain slightly higher than forecasts from earlier in 2024.
• The latest HMT average of new independent UK forecasts indicate inflation to rise across 2025 from 2.5% in Q4 2024 to 2.7% in Q4 2025. Furthermore, the Bank of England's Monetary Policy Committee reported in December that while most indicators of UK near-term activity had weakened, inflation, wage growth and some indicators of inflation expectations had risen and added to the risk of inflation persistence.^[25]
• The stronger outlook for the Scottish and UK economy is set against moderately strengthening, albeit uncertain global conditions. At a global level, the IMF forecast global economic growth to strengthen from 3.2% in 2024 to 3.3% in 2025 and 2026, supported by lower inflation and gradually looser monetary policy. However, they note that the balance of risks is tilted to the downside, reflecting a recent increase in economic policy uncertainty alongside continued geopolitical tensions which present risks to the growth and inflation outlook. Furthermore, risks and growth could diverge across regions with strong growth in the United States and Asia whilst remaining weak in the Euro Area.^[26]