The Scottish economy entered recession this year and real household income is expected to see its sharpest decline since records began in 1998, experts have said.
The forecast from the Scottish Fiscal Commission was published alongside John Swinney’s budget on Thursday afternoon.
It said the Scottish Government would have to deal with higher prices and increased pay demands in the public sector.
The report said: “Rising prices run through all of our forecasts.
“Higher energy prices and their consequences for inflation more generally mean that we now think the Scottish economy has entered recession this year, and Scottish households are expected to see the biggest real-terms fall in their disposable income since Scottish records began in 1998.”
The report continues: “Even once inflation returns to lower levels, and real household incomes start to grow again in 2024-25, living standards will take time to recover to the pre-crisis 2021-22 level.
“Our forecast suggests that, by 2025-26, real disposable income per person will be no higher than its level a decade earlier.”
The SFC said the impact would be particularly strongly felt among those on low incomes, while the overall economy is undergoing “profound shifts”.
Modelling from the SFC shows that Scotland will see a 1.8% drop in GDP as a result of the current recession, recovering to pre-recession levels in the first quarter of 2025 – one quarter later than the rest of the UK.