ECONOMIC growth is forecast to slow amid concerns over US tariffs on whisky after Scotland outperformed the UK last year.
Ernst & Young LLP warned growth prospects for 2025 “are weaker than previously anticipated”, with expected Gross Value Added (GVA) growth of 0.9% – down from 1.3% last quarter.
It said while GDP data suggests a favourable outlook with growth in Scotland outperforming the UK last year, “it masks the quarterly profile of growth which shows a slowdown throughout 2024”, with growth of 0% in the fourth quarter.
This coincided with rising inflation, which surged from 1.7% in September to 2.5% by December, and then 3% in January 2025.
The EY Item Club Scotland report forecasts growth to return at GVA of 0.9% in 2025, followed by weaker than previously anticipated growth of 1.5% in 2026 and 1.3% in 2027.
A spokesperson said: “Forecasts indicate that private services sectors and construction will drive robust GVA growth and maintain above-average growth in the following years.”
The report suggests households have become “more cautious amid growing economic uncertainty”, and with employer national insurance contributions (NICs) set to increase from April, it warned vacancies exist with employers “struggling to fill roles”, amid the possibility of an increase in unemployment due to the national insurance rise.
Consumer and business confidence have also taken a hit, with the Composite Consumer Sentiment Indicator dropping to its lowest level since early 2024, the report said.
One of the significant risks of the economic forecast is the potential impact of US tariffs on Scotland’s largest export, whisky, potentially vulnerable given America is its largest market.
A spokesperson said: “Even before the last UK Budget, ONS figures found Scottish businesses reported they would most likely raise prices (41%) or absorb within profit margins (35%) any future increases in employment costs, and only 16% said they would reduce headcount. Exactly how firms will respond is uncertain.
“Across these sectors, we expect no growth in wholesale and retail jobs this year, a small decline in arts, entertainment and recreation, and relatively muted growth in accommodation and food.
“However, the downside risk to the outlook for these sectors is greater, as they also typically have relatively higher concentrations of lower-paid staff. This means they are more vulnerable to the higher NICs given changes involve reducing the threshold at which firms start paying tax combined with the 6.7% increase in April in the national living wage.”
This follows Scotch Whisky Association (SWA) figures that show the beverage decreased 3.7% in 2023 exports by value, amid a challenging year the association says. Scottish politicians have called for more support for whisky.
EY Scotland managing partner for financial service Sue Dawe said: “Addressing skills shortages and enhancing workforce participation will be essential in revitalising Scotland’s labour market.
“While household incomes are expected to recover, inflationary pressures and cautious business sentiment may dampen investment and, therefore, hiring.”
