Scotland's economic growth 'weaker' than rest of UK as business 'falters' from Donald Trump tariffs

The respected Fraser of Allander Institute has issued a damning assessment of Scotland’s economic performance, citing the impact of Donald Trump’s tariffs.

A slowdown in growth in Scotland’s economy has been blamed on “higher global uncertainty”, with experts branding the recovery from the Covid pandemic as “weaker” than the rest of the UK and “particularly” linked to Donald Trump’s trade tariffs.

The Fraser of Allander Institute (FAI) has downgraded their forecasts for growth in Scotland, as Deputy First Minister Kate Forbes demanded “decisive action” from the UK government to counter business uncertainty.

It comes as First Minister John Swinney, writing exclusively for The Scotsman, said Labour could have avoided the "fiscal nightmare” being wrestled with by Sir Keir Starmer’s UK government if they “had the courage to do what the SNP have done, and ask higher earners to pay more tax”.

Buchanan Street in Glasgow's city centre. New figures have shown the UK economy contracted unexpectedly in May,. Picture: John Linton/PA Wire

Economics experts at the Strathclyde University-based think tank FAI highlighted a recent rise in inflation this year as having “played a role” as the economy “faltered”.

Speaking as its latest quarterly economic commentary was published, institute director Professor Mairi Spowage said: “After a strong start to the year, the Scottish economy has faltered in March and April and is essentially the same size in real terms as it was six months ago.

“Unfortunately, the wider business environment and global events are still taking a toll on businesses and consumers, which is having a dampening effect on spending and business investment.”

The economic assessment comes after Mr Trump’s decision to introduce a 10 per cent levy on most UK goods, including Scottish whisky and salmon, came into affect from April.

The FAI now expects economic growth of 0.8 per cent in 2025 and 1 per cent in 2026, which is a slight downgrade from its April forecasts of 0.9 per cent and 1.1 per cent.

The think-tank noted Scottish real GDP grew 0.4 per cent in the first quarter of 2025, compared to 0.7 per cent in the UK as a whole.

The think-tank said: “A pattern of lower growth in Scotland has persisted, leading to a weaker recovery from the pandemic than the UK generally.”

Looking at the latest data, it found Scotland’s economic growth had “remained slow”, with rises in the first months of this year having been “partially offset” by falls in March and April.

The report said: “The slowdown in growth this year is largely due to higher global uncertainty, particularly from the announcement of tariffs in the US and elsewhere.

“With the CPI [Consumer Prices Index] rate at 3.4 per cent in May 2025 after staying below 3 per cent throughout 2024, an uptick in inflation has also played a role.”

The think-tank said its latest forecasts “reflect greater uncertainty and difficult economic circumstances”. The body also noted that businesses had reported a slowdown of activity in the first quarter of this year compared to the same period last year.

The report said this “decline in activity may reflect the impact of increases to employer national insurance contributions as well as uncertain conditions, particularly from trade and tariff decisions taken by the US government”.

It said the “difficult conditions for business have been echoed in the labour market”, with the think tank noting pay growth has been “slow” and the number of employees has fallen 0.9 per cent from last year.

It also said there was “some indication that the proportion of people living beyond their means in Scotland may have increased compared to this time last year”.

Ms Forbes said: “It is clearer than ever that Scotland’s economy is being impacted by challenging global trading conditions and uncertainty – conditions mirrored across the rest of the UK.

“We are taking ambitious steps to grow the economy by pursuing new investment, building export potential and driving and capitalising on the Scottish innovation at the forefront of many key global industries.

“But we are doing all of this without the full economic powers needed to fully address the issues facing Scottish businesses. We need decisive action from the UK government to counter the damaging economic impacts of Brexit and business uncertainty.

“This includes reversing its decision to increase employers’ national insurance contributions which, as the Scottish Chambers of Commerce has highlighted, is severely damaging business confidence, investment, growth and jobs.”

Scottish Conservative shadow finance secretary Craig Hoy said: “While there’s no question external factors are impacting Scotland’s economy, it’s clear anti-business SNP policies are also stifling growth.

“The Nationalists’ failure to fully pass on the rates relief available to businesses south of the Border, coupled with them making Scotland the highest taxed part of the UK, explains why the growth rate here is even lower than the anaemic rate Keir Starmer is presiding over.

“Scotland is currently saddled with two disastrous, high-tax-low-growth, left-wing governments.”