Economic Commentary August 2025

Our economic commentary provides a regular update on global, UK, and Scottish economic trends, drawing on recent economic data as well as feedback from businesses.

The methodology consisted of desk research.

• Global business activity expanded in July at the quickest pace so far in 2025, driven by an acceleration in service sector growth. Business optimism for the year ahead, however, remained relatively downbeat due to worsening geopolitical concerns.
• UK GDP grew by 0.4% in June, following a contraction of 0.1% in May. Output expanded in all three main sectors, with the service sector being the main contributor to growth. In the three months to June, GDP was up 0.3%.
• Business activity rose across the UK as a whole in July with 7 out of 12 nations/regions growing. Business activity in Scotland, however, contracted after two consecutive months of growth and optimism about the year ahead, and also fell in contrast to most other regions/nations.
• UK consumer price inflation was 3.6% in the year to June, up from 3.4% in May and still above the Bank of England’s 2% target. Despite the rise, the Bank of England cut interest rates in August in an attempt to stimulate growth, suggesting it views rising inflation as temporary.
• The Scottish economy contracted by 0.2% in May. Output was up in services (+0.3%), but down in both production (-3.0%) and construction (-0.3%). The manufacturing sector was the largest downward contributor, partly due to the closure of Grangemouth. In the three months to May, GDP contracted by 0.4%.
• 26% of Scottish businesses reported an increase in monthly turnover in June (down from a high of 41% in March), while 24% reported a decrease (up from a low of 12% in March). The cost of labour was the most significant ‘turnover challenge’ reported, likely due to the increased employer NI contributions introduced in April.
• Scotland’s labour market continues to cool, as the number of payrolled employees decreased by 13,000 (-0.5%) over the year to July (the eighth consecutive monthly fall). 20% of businesses continue to report worker shortages; however, this was the lowest proportion in a year.
• Scottish Enterprise customers continue to be generally optimistic about their own performance, but are increasingly pessimistic about the wider economic outlook. Challenges continue for some businesses, with staffing and recruitment remaining a recurrent issue along with rising costs and access to investment funding (particularly for early-stage businesses).
• The IMF has upgraded its global growth forecast to 3.0% for 2025 and 3.1% for 2026.
• The Bank of England is forecasting UK GDP growth of 1.25% in 2025 and 2026, while the Fraser of Allander Institute downgraded its forecast for Scottish economic growth to 0.8% in 2025 and 1.0% in 2026. The downgrade reflected slower growth in March and April, along with rising inflation and weaker conditions across the UK and globally.

The paper makes no recommendations.