Scottish economic bulletin: October 2023

Economic Outlook

Forecasts continue to indicate positive GDP growth however recent weakening in consumer and business sentiment highlights the uncertainty that persists.

• In May the Scottish Fiscal Commission forecast Scotland's GDP to remain positive but subdued in 2023, growing 0.2% over the year before picking up to 0.9% in 2024 and 1.3% in 2025.^[26]
• Economic data since then shows that GDP growth has remained broadly flat and there has been a slight softening in the labour market, while the gradual cooling of inflationary pressures has led to a pause in the current sequence of monetary tightening. Conditions for households and businesses remain challenging however with inflation still a way to go before getting back to the 2% target and the full impacts of previous interest rate rises still to be felt.
• The average of more recent UK forecasts (published in September) indicates a similar outlook pattern to the SFC forecast with UK GDP forecast to grow 0.4% in 2023 rising to 0.6% in 2024. Furthermore, it continues to present a more resilient outlook than was forecast at the very start of the year, despite expectations for 2024 moderating slightly.^[27]

• The average new forecast for inflation is that it will fall to 4.8% in the final quarter of 2023 before falling further to 2.7% by the end of 2024. This is a slightly slower than was forecast earlier in the year, reflecting the underlying persistence of current inflationary pressures.

• Overall, the resilience in economic output and the labour market, coupled with easing inflation pressures over the year has been positive. However the recent weakening in business activity alongside the weakening in business and consumer optimism highlights the risks and uncertainty in the economic outlook and the challenges in navigating the current economic environment.