Donald Trump tariffs spark Scottish economic growth downgrade amid ‘turbulent’ conditions
“Economic conditions in 2025 are turbulent and uncertain, and are likely to remain so throughout the year” – Professor Mairi Spowage
Scotland’s economic growth forecasts have been downgraded amid warnings that conditions will be “turbulent and uncertain” and as firms grapple with fresh cost pressures.
University of Strathclyde think tank the Fraser of Allander Institute said the start of 2025 had seen “growing unease”, with businesses preparing for “rising costs and escalating geopolitical tension”, including the introduction of trade tariffs by Donald Trump.
The think tank used its latest economic commentary to highlight concerns about this month’s rise in employers’ national insurance (NI) contributions, announced in last autumn’s UK Budget.
And while it had forecast in January that Scotland’s economy would grow by 1.3 per cent in 2025, and then by 1.2 per cent in 2026, the latest commentary downgraded these. Economic growth of 0.9 per cent is now expected this year, with 1.1 per cent forecast for 2026.
The highly-respected institute said the change was due to “ongoing concerns over global economic fragility, tighter UK fiscal policy, and lingering inflationary pressures”.
Professor Mairi Spowage, director of the Institute, said: “Economic conditions in 2025 are turbulent and uncertain, and are likely to remain so throughout the year. Therefore, the picture is still one of subdued growth. Many of the challenges businesses faced in 2024 - from rising costs to policy uncertainty - have not gone away.”
She added that additional pressures from the hike in NI charges, together with geopolitical instability “risk dampening confidence and growth further”.
Spowage added: “These tax changes will start to hit businesses next week, with many scaling back plans for workforce expansion and recruitment as a result.”
Her comments came as data from the institute’s regular Scottish Business Monitor showed that 94 per cent of firms expect cost pressures to increase in the first half of 2025, with three in four businesses highlighting the NI changes as a significant concern.
And although UK headline inflation dipped to 2.8 per cent in February, the think tank said this was “unlikely to bring significant relief to Scottish households”. It noted that services inflation was still “elevated” at 5 per cent, as it warned that “further price increases are expected to strain household budgets”.
Comments
Want to join the conversation? Please or to comment on this article.