Scotland’s economic growth has been downgraded by a key research group to reflect heightened UK and global uncertainty, including the impact of April’s tax and tariff hikes.
The University of Strathclyde’s Fraser of Allander Institute is now forecasting the Scottish economy will grow by 0.8% this year and expand by 1% in 2026.
As recently as April it predicted growth of 0.9% in 2025 and expansion of 1.1% next year in Scotland.
The research institute said: “Our latest forecasts reflect greater uncertainty and difficult economic circumstances.”
It noted other forecasters had increased gross domestic product growth projections for Scotland and the UK next year, while cutting expectations for 2025.
It said its revised outlook “comes despite more upbeat projections from both the Scottish Fiscal Commission and the Office for Budget Responsibility, which have recently upgraded their expectations for 2026 whilst similarly revising down their GDP forecasts for 2025.”
Fraser of Allander is holding its 2027 forecast at 1.1%.
It said: “Economic growth is now slowing compared to the start of the year and inflation has also edged up to 3.4%, after staying below 3% throughout 2024.
“The business environment is also showing signs of strain, with companies reporting cutting back on activities in the first quarter compared to last year, plagued by rises in national insurance contributions, which took effect in April, alongside uncertainty surrounding President Trump’s trade tariffs. Indeed, pay growth and employee numbers are down, signalling potential weaknesses in the labour market.”
Mairi Spowage, director, said: “After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago.
“Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.”
João Sousa, deputy director of Fraser of Allander, said: “The fiscal announcements by both governments suggest that there are significant economic challenges in the years and months to come for the UK and Scottish governments.
“Particularly from 2027-28 onwards, the choices of government look to become more difficult. Of course, this is the role of the government in power: but the difficulties of the UK Government this week show that events can quickly derail its plans.”
Scottish Conservative shadow finance secretary Craig Hoy said: “While there’s no question external factors are impacting Scotland’s economy, it’s clear anti-business SNP policies are also stifling growth.
“The Nationalists’ failure to fully pass on the rates relief available to businesses south of the border, coupled with them making Scotland the highest taxed part of the UK, explains why the growth rate here is even lower than the anaemic rate Keir Starmer is presiding over.
“Scotland is currently saddled with two disastrous, high-tax-low-growth, left-wing governments.”
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