Over the three months to November, GDP shrank by 0.3%, a slowdown compared to the 0.4% growth seen in the third quarter of 2024 (July to September).

The professional, scientific, and technical services sector saw the largest decline, contracting by 3.5% and contributing -0.3 percentage points to the overall contraction. Conversely, the information and communications sector grew by 1.1%, adding 0.1 percentage points to GDP.

Deputy First Minister Kate Forbes acknowledged the disappointing figures but highlighted Scotland’s overall growth over the past year and forecasts for further strengthening.

She emphasised: “Our draft budget for 2025-26 continues the process of building a green, fair and growing economy.

“This includes almost tripling capital investment in the offshore wind supply chain to £150 million in 2025/26 and providing funding for the Scottish National Investment Bank and our enterprise agencies.

“However, many factors are outside the Scottish government’s control and we are deeply concerned by the potential impact of the UK government Budget, with higher National Insurance employer contributions likely to have real and damaging consequences for businesses.”

Kevin Brown, savings specialist at Scottish Friendly, described the figures as “deeply worrying,” reflecting the challenges faced by the Scottish economy due to tax increases and persistently high interest rates.

He explained: “Although the UK as a whole is struggling and the labour market is starting to finally look shaky, there are signs of real problems emerging north of the border as Scotland’s economy takes a battering.

“Households which have been hammered by inflationary pressures are now facing job losses as the economy takes the strain of higher interest rates. Scotland does not have independent rate setting powers so has to look to the Bank of England for measures to ease pressure on the economy.

“As tax increases take effect the expectation is that pressure is only going to mount from here. It is likely we’ll start to see movement on the Monetary Policy Committee (MPC) as nearly all the signs are there that lowering rates is a necessary measure to get the economy back on track.

“For households wondering what steps to take in such circumstances, the good news is that wages are still increasing ahead of inflation. Taking steps to ensure they have a rainy-day fund is essential, if possible. Beyond that when saving for the future, with rates set to fall households should consider investing for the long-term as an alternative.”