Forecast downgraded as global trade concerns rise

• Scotland’s 2025 GVA growth forecast downgraded to 0.6% from 0.9% predicted last quarter, with 0.6% also expected in 2026 down from 1.5%
• Vacuum between Scotland’s rural and city economies predicted to grow with tariff impact expected to exacerbate existing gap in prosperity
• Productivity gains, rather than employment, anticipated to contribute the most to longer-term economic growth

Reflecting wider trends, the Scottish economy is currently in a fragile state, exacerbated by the US's recent announcement of 10% tariffs on all imports, which has dampened business and consumer confidence, according to the latest EY ITEM Club Scotland forecast.

The US tariffs are likely to have an asymmetric impact on Scotland’s local areas. Employment and GVA figures for 2023 indicate that regions such as West Dunbartonshire, West Lothian, Argyll and Bute, Clackmannanshire, Moray and Angus were the most export-dependent, with large whisky sectors. Consequently, we forecast that the smaller and less diversified of these economies — namely Clackmannanshire, Moray and Angus — will struggle the most this year.

Scotland’s 2025 GVA growth forecast has been downgraded to 0.6% from 0.9%. Some of this is expected to roll into next year, and as such 2026 is also forecast to be 0.6% - a much larger downgrade from 1.5% last quarter. Consumer spending is anticipated to grow 0.7% in 2025, down from the more than 1% previously forecast. However, consumer spending should start to pick up in 2026, which is expected to filter through to wider economic growth in 2027, with GVA expanding by 1.2% in that year.

Scotland is expected to slightly lag the UK. This is mainly due to Scotland’s industrial profile; a larger manufacturing sector is more susceptible to US tariffs and weakening global demand in the short term, and its large public sector is expected to come under further pressure as fiscal conditions continue to tighten. UK GDP is expected to grow by 0.8% in 2025 (down from 1%) and 0.9% (down from 1.6%) in 2026, before settling to a growth of 1.5% in 2027. (Note: GDP is used at a UK level and GVA at a Scotland level because it excludes taxes and subsidies, offering a clearer picture of regional economic activity.)

Uncertainty is compounded by persistent inflation, leading to a weak near-term economic outlook. Although production sectors contributed to growth in Q1 2025, output levels remain below pre-pandemic figures, particularly in oil, gas, and electricity supply, which have seen significant declines. Manufacturing has been volatile, with modest growth of 1.2% recently, while the services sector in Scotland lagged behind the UK average.

Productivity gains, rather than employment, is anticipated to contribute the most to longer-term economic growth, especially when factoring in that Scotland’s working-age population (like many other parts of the UK) is set to decline from 2027 onwards, limiting the scope for future jobs growth.

Managing Partner for EY Scotland Ally Scott said:

“Sector-wise, manufacturing faces challenges due to weak demand, particularly in transport and food and drink subsectors, with whisky exports to the US expected to be being significantly affected.

“The impact of US tariffs will vary across regions, with less diversified economies like Clackmannanshire, Moray, and Angus facing the most significant struggles. Conversely, a trade deal with India may alleviate some tariff burdens on whisky exports.

“Looking ahead, a number of geopolitical, global economic moves are expected to foster caution among businesses and consumers, which could lead to delayed spending decisions. Consequently, Scottish GVA growth forecasts have been downgraded for both 2025 and 2026, although improvements are anticipated from 2027 as consumer spending rises.”