A positive outlook for economic growth in Scotland, despite warning signs for the labour market

10th February 2026

The outlook for both Scottish and UK economies has improved and looks to remain positive through 2027, according to the Fraser of Allander Institute at the University of Strathclyde.

In the latest quarterly Economic Commentary, the Institute has forecasted that the Scottish economy will end 2025 with 1.3% growth and will continue to grow by 1.1% across 2026.

This improvement over last quarter's forecast mirrors similarly upbeat predictions from the Scottish Fiscal Commission (SFC) and the Office for Budget Responsibility (OBR).

At the same time, the number of payrolled employees in Scotland has fallen consistently since mid-2024, with job losses concentrated in hospitality, education, and retail sectors. In recent months, the number of people on unemployment-related benefits has also ticked up.

Institute Director Professor Mairi Spowage said, "Even though we're seeing growth in the economy, we've lost thousands of jobs in hospitality, education, and retail over the course of 2025, and we're seeing a mismatch between available jobs and the people we have to fill them.

"We know that a lot of people who are not in work are dealing with health conditions, but the jobs that businesses struggle to fill are often physically demanding or in-person, meaning that they may not be suitable for this group of people."

This edition of the commentary also continues our look into social security in Scotland, focusing on benefits available to pensioners. Benefit spending on pensioners has risen in nominal terms over the last fifteen years, driven largely by the triple-lock on pensions and growing spending on disability-related benefits.

Hospitality, education, and retail accounted for the majority of this decline across 2025; hospitality in
particular had 6,000 fewer employees in Scotland in October 2025 (the most recent period for sectoral payrolled employment data) compared to October 2024.Changes in these three sectors point to larger challenges for the UK as a whole.

In recent years, hospitality and retail have noted particular challenges with costs, especially staff costs and energy. Within the education sectors,
universities in particular have faced significant issues with financial sustainability, due largely to rising costs and falling international student
demand. This has resulted in well-publicised layoffs, especially at the Universities of Dundee and Edinburgh.

Read the full report HERE
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