Both the British Chambers of Commerce and the EY Item Club see growth slowing sharply to about 0.9% in Scotland and across the UK, down from about 1.3%, amid continuing low productivity.

Increased business costs after Rachel Reeves’ autumn budget also mean inflation is forecast to remain above the Bank of England’s 2% target until the end of 2027, while unemployment is set to rise further this year and business investment has been revised downwards.

The downbeat outlook comes before the Chancellor’s spring statement on 26 March when she is expected to outline substantial cuts to government spending, including to the welfare budget, in order to meet her fiscal rules.

Shevaun Haviland, the BCC’s director-general, said that despite rising geopolitical uncertainty and a looming global tariff war, business could not be expected to shoulder further cost burdens on top of the £25bn imposed in October.

“The chancellor has been quite clear that she’s done that once [in October’s budget] and she won’t be doing that again. So we very much hope she’ll be sticking to her word,” said Ms Haviland.

Vicky Pryce, chair of the BCC Economic Advisory Council, said: “This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.

“Inflation will continue to be stubborn this year forcing the Bank of England to keep interest rates relatively high. Global uncertainties will add further dark clouds to the economic climate.

“Businesses can’t simply rely on the promise of long-term strategies from government, they need support now to invest, recruit and trade.”

Scotland’s economy outperformed the UK in 2024, but a sharp slowdown in output from consumer-facing sectors in Q4 suggests households became more cautious amid growing economic uncertainty.

EY’s Item Club report suggests growth expectations are weaker than previously anticipated, with an expected GVA growth of just 0.9% this year, 1.5% in 2026 and 1.3% in 2027. Forecasts indicate that private services sectors and construction will drive robust GVA growth and maintain above-average growth in the following years.

EY Scotland managing partner, Ally Scott said: “Scotland continues to grapple with low productivity and high labour market inactivity. Despite outperforming the UK last year, which is very welcome news, the pronounced slowdown at the end of last year has led to another downward revision of our growth forecast.

“The shared challenge to both public and private sectors is the pressing need to address productivity, labour market and growth trends, and try to turn this into an economic opportunity.

“Consumer and business confidence has also taken a hit, reflecting concerns with the economic outlook and looming tax changes.

“Scotland’s proportionally higher population of private, owner-managed businesses means these challenges will be of acute concern – and that’s before inheritance tax and associated succession planning is taken into account.

“Before the last UK Budget, ONS figures found 41% of Scottish businesses said they would most likely raise prices to meet any future increases in employment costs, and the reality of higher employer NICs is playing out in real time. 

“Many are watching with interest to see if the mood music around energy policy shifts in the US along with the recent Rosebank court ruling will trigger an uptick in confidence in Scotland’s energy sector.

“With the global sentiment dial shifting even slightly, we could see financing begin to flow somewhat easier into the sector to help solve some of the biggest challenges in our energy transition.”