Fraser of Allander upgrades Scottish GDP forecast – Daily Business

A stronger performance than expected has led the Fraser of Allander Institute to upgrade its forecast for Scottish GDP growth.

Though revised only modestly to 1% from 0.9%, it reflects the institute’s view that the Scottish economy has continued to demonstrate resilience despite uncertainty arising from tensions in the Middle East.

However, its Quarterly Economic Commentary warns that significant risks remain. Labour market indicators point to softening in economic conditions, with employment falling and both unemployment and economic inactivity increasing in the first quarter of 2026.

Payrolled employment has also declined through the opening months of the year, potentially reflecting a more cautious approach to hiring as firms navigate heightened uncertainty.

Inflationary pressures have eased in recent months, but the effects of the energy shock are being felt with a lag.

Fuel and transport costs are already visible in the data, while household gas and electricity bills are likely to show a clearer impact from July, when the Ofgem price cap rises. Recent diplomatic progress has helped oil prices fall back sharply from their peak.

Risks have not disappeared entirely, and the outlook remains sensitive to whether energy markets continue to normalise.

Professor Mairi Spowage, director of the Fraser of Allander Institute, said: “It is encouraging to see the Scottish economy continuing to grow despite a challenging and uncertain global environment.

“The stronger-than-expected performance in the first four months of 2026 has led us to revise our growth forecast upwards, demonstrating the resilience of households and businesses alike.

“However, it is too early to conclude that these challenges have passed. The conflict in the Middle East continues to create uncertainty for businesses and policymakers, while recent labour market data suggest some softening in hiring activity.

“Energy markets and the normalisation of activity through the Strait of Hormuz will remain important indicators to watch over the coming months.

“The longer disruption persists, or the more frictions there are in the movement of oil and gas, the greater the risk of a more prolonged impact on activity and prices. While the recent growth figures are welcome, the outlook remains uncertain, and a degree of caution is still warranted.”