Scottish Economic Outlook

The Scottish economy managed to avoid a technical recession in 2023 – unlike the UK as a whole. But the rate of growth was slow at just 0.1% for the year. This meant that GDP at the end of 2023 was just 1% above its pre-Covid level, broadly matching the UK performance.

We expect the Scottish economy to grow at 0.4% this year. That’s similar to the UK but relatively weak by historical standards. Growth is then set to pick up to 1% in 2025, as activity stabilises.

The Scottish labour market has remained robust, with the unemployment rate averaging 4% over 2023. That can be partly explained by Scotland having a higher proportion of its working age population outside the labour market (39.1%) than across the UK as a whole (36.9%).

A tight Scottish labour market saw employee pay growth average 8.1% in 2023 – above the UK average of 7.3%. 

Scottish consumer spending growth has outperformed the UK. We expect in 2024 and 1.5% in 2025.

Our forecast is based on three factors:

1. Inflation continues to moderate, supporting households’ disposable incomes.
2. Consumer confidence continues on its upwards trajectory, making households feel more financially secure to spend.
3. Low relative housing costs – Scotland boasts the lowest house price-to-earnings ratio in the UK, allowing a larger share of income to be spent on other goods and services.

Scottish business investment has been hurt by higher interest rates and supply chain disruptions that were particularly acute for manufacturing. We expect the weaker momentum to persist, resulting in a 1.4% fall in investment in 2024, with a return to modest growth of 0.3% in 2025 as near-term uncertainties ease.