Scottish Economic Bulletin: July 2025 - Economic Outlook

12th July 2025

Global and domestic headwinds are expected to weigh on the economic growth outlook.

Events in the Middle East over the past month and the subsequent volatility in global financial markets, alongside further developments in US international trade policy, continue to emphasise the scale of uncertainty in the global economic outlook.

Overall, growth is forecast to slow this year at a global and domestic level. Most recently, in June, the OECD forecast global growth to slow from 3.3% in 2024 to 2.9% in 2025 and 2026.

At a UK level, the latest HMT average of new independent UK forecasts shows that UK GDP growth is expected to moderate slightly to 1.1% in 2025 before slowing to 1% in 2026 while inflation is expected to average above target in 2025 and gradually ease back in 2026.

In Scotland, in May, the Scottish Fiscal Commission (SFC) forecast Scottish GDP growth to slow to 1.1% in 2025, down from 1.2% in 2024, before rising to 1.8% in 2026 and 1.7% in 2027. This is a more moderate outlook for growth than previously forecast in December, reflecting a similar pattern of downward revisions to UK and global growth forecasts.

Most recently, in July, the Fraser of Allander Institute revised down its forecasts for Scottish GDP growth for 2025 to 0.8% before rising slightly to 1% in 2026 and 1.1% in 2027.

Overall, the downward revisions to the growth outlook reflects the downside risks from the sharp increase in global economic uncertainty alongside the slight softening in GDP growth going into the second quarter, ongoing cost challenges and the slight softening in some labour market indicators.

Alongside this, business and consumer sentiment remains subdued, however latest data indicates a greater degree of resilience in business optimism in recent months.

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