Scotland’s economic outlook reveals a mixed bag of forecasts, with Gross Value Added (GVA) set to experience a modest rise while employment growth faces challenges, according to the latest EY ITEM Club Scottish Spring forecast.

The report anticipates a marginal increase in Scotland’s GVA by 0.4%, slightly lower than the previous forecast of 0.7%. However, longer-term prospects remain optimistic, with sustained growth projected in the following years. 

Nonetheless, Scotland’s economic growth is expected to trail behind the UK average, forecasted at 1.8% annually in 2025 and 2026, rising to 1.9% in 2027.

One of the primary factors contributing to the employment challenges is the underrepresentation of Scotland in sectors poised for robust job growth, such as professional, scientific & technical services, and administrative & support sectors. 

Consequently, Scotland’s employment growth is forecasted to lag behind the UK average, with an expected average growth of 0.8% annually from 2024-2027, compared to the UK’s projected growth of 1.1% over the same period.

The weakening labour market demand is evident through various indicators, including declining employment rates, fewer job adverts, and easing pay growth, despite low unemployment levels. 

While unemployment is expected to rise modestly to 4.2% in 2024, conditions are anticipated to improve gradually, with a forecasted return to 4.0% in 2025. However, employment growth at this level would still see Scotland trailing behind the UK average.

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Lower inflation is predicted to support a steady recovery in real incomes, potentially fueling growth in consumer expenditure. Personal disposable income is forecasted to grow by 1.8% in Scotland in 2025, slightly lower than the UK’s projected growth of 2.1%.

Overall, while Scotland’s economic forecast paints a picture of cautious optimism, addressing employment challenges and sectoral disparities will be crucial for achieving sustainable growth and closing the gap with the UK average. 

“As the Scottish business community anticipates a policy reset from new political leadership, our forecast shows the economy remains marginally behind, but largely tracks, trends we see at a UK level,” said EY Scotland managing partner Ally Scott.