Scottish economic bulletin: January 2025

Overview

The January 2025 edition of the Scottish Economic Bulletin reviews the latest economic data from during the final quarter of 2024 during a period in which the UK and Scottish budgets set out new fiscal measures and forecasts in the lead up to the festive period.

Latest indicators continue to show that economic activity and growth strengthened in 2024, however the pace of growth softened in the latter half of the year.

GDP growth was flat (0.0%) in the 3 months to October 2024, its slowest 3‑monthly rate since the start of the year and reflected a similar pattern of slowing growth at a UK level. There was positive, albeit slower, growth in the services and construction sectors, however this was offset by an accelerated fall in output from the production sector.

Over the year to October, Scotland’s GDP has grown 0.9% with growth of 1% forecast for the year as a whole (up from 0.2% in 2023).

The labour market has continued to perform strongly over the course of 2024. The latest Labour Force Survey (LFS) indicators suggest that unemployment in Scotland has fallen to below the UK average, albeit with a slight increase in the latest 3-month period to 3.6%.

LFS response rates mean that these estimates should be treated with caution, however wider labour market indicators also indicate a resilient labour market with Scotland’s claimant count unemployment rate remaining unchanged at 3.9% in November. Earnings growth also remained robust with annual pay growth in November at 4.6% in real terms, supported by robust nominal pay growth and despite inflation picking up slightly to 2.6%.

That said, latest business surveys continue to indicate that recruitment activity softened at the end of the year and more broadly that optimism has softened in recent months, with main business concerns including both falling demand for goods and services and taxation. Consumer sentiment remained negative in November and is at its lowest level in 2024.

Forecasts for the coming year continue to point towards an underlying pattern of strengthening growth, supported by, in the short term, more expansionary fiscal policy. However, as well as domestic factors, uncertainty around US trade and economic policy present downside risks for the year ahead. This is reflected in recent movements in financial markets, where the cost of UK debt has increased as international bond markets adjust expectations. This may impact the UK Chancellor’s fiscal plans given the existing fiscal headroom and fiscal targets. Therefore, there is potential turbulence for the UK economy reflecting the current market assessments of the growth and fiscal outlook of the UK economy.