Scottish economic bulletin: August 2025

Business Conditions

Business activity remains subdued, though some indicators have improved over the quarter.

Business Activity

• Business surveys for the second quarter of the year indicate that business activity in Scotland has remained subdued, however the most recent data point to some slight improvements.
• The Scottish Business Monitor for Q2 2025 indicated that, on balance, Scottish businesses continued to report reduced activity, though to a lesser degree than in the first quarter of the year.^[6] The RBS Growth Tracker business survey has indicated a similar direction of improvement with the private sector Business Activity Index increasing for a third consecutive month in June to 50.9 (a reading above 50 indicates growing activity).^[7]
• Furthermore, the Business Insights and Conditions Survey (BICS) shows that an increasing share of businesses report that business performance is better than it was a year ago, with 29.8% of businesses reporting increased performance in June, up from 25.6% in May. The highest share of businesses continue to report that performance is unchanged from last year (42.1%).^[8]
• However, demand conditions remain challenging, particularly in the manufacturing sector, with the RBS Growth Tracker continuing to report a fall in new work orders (48.7). Additionally, evidence from BICS indicates that in June 18.2% of businesses reported that domestic demand fell over the month (up from 14.2% in May). Conversely, 16.9% of businesses reported that domestic demand increased between May and June.
• Reflecting the current weakness in demand, the RBS Growth Tracker reported that staffing levels remained broadly unchanged in June. Despite this, business optimism improved for a third consecutive month and rose to its highest level since October last year.

Business Concerns

• Key business concerns during the first half of 2025 have been falling demand and taxation, followed by inflation and energy prices. BICS data for August shows that demand for goods and services continues to be the most commonly cited main concern by businesses in Scotland, with its share rising form 12.8% in July to 19.1% in August. This is the highest share of businesses reporting it as a main concern in the time series to date.
• The second most reported main concern was competition with other UK businesses, which rose from 9.3% in July to 10.4% in August, and may be reflective of wider concerns regarding demand. Taxation as a main concern fell from 11.6% in July to 9.0% in August, its lowest level since November 2024, having recently risen in April to 18.0% when the increase in employer National Insurance Contributions (NICs) was implemented.

Business Costs

• The RBS Growth Tracker business survey shows business input prices continued to rise in June, while output prices rose as well but to a lesser extent than in May, and by its lowest rate since July 2024. This may indicate that businesses are absorbing higher costs to maintain price competitiveness amid concerns of falling demand.^[9]
• This pattern is consistent with BICS indicators showing that the proportion of businesses considering price increases has fallen in recent months from its recent peak of 40.3% in May to 13.9% in August.
• Labour costs continue to be the most frequently mentioned driver of businesses considering raising prices (36.0%), followed by raw material costs (17.7%). While labour costs continue as the main driver of price increase considerations, its share as a response has notably fallen from previous months, indicating that businesses may have adapted to the recent increases in employer National Insurance Contributions and National Living Wage.
• The Scottish Business Monitor for Q2 2025 shows that the majority (63%) of businesses report that they have already implemented necessary adjustments in response to changes in employer NICs, with 38% reporting that they anticipate more adjustments will be needed in the future.

• The combination of cost challenges alongside concerns of falling demand continues to present challenging business conditions for considering the extent to which to absorb increased costs or to pass them through to customers, and is sector specific.

Business Optimism

• Business optimism continues to be impacted by increased global economic uncertainty and key business concerns. Data from BICS shows that businesses are increasingly more likely to report that they expect business performance to stay the same in the next 12 months (47.5% in July, up from 41.3% in June), with fewer businesses responding that they are unsure. However, the share of businesses reporting that they expect performance to increase in the next 12 months fell from 31.7% in June to 27.4% in July, while the share of businesses reporting that they expect a decrease in performance remained broadly unchanged (10.4%).

• The Scottish Business Monitor shows that levels of optimism for growth over the next 12 months remains subdued but have improved slightly between the first and second quarters of the year. 73.5% of businesses still expect weak or very weak growth (down from 79.3%) while 23.5% of business expect moderate growth (up from 19.9%). Similarly, RBS Growth Tracker business survey data for June shows that business optimism improved for a third consecutive month (61.8) to its highest level since October last year.