Scottish Economic Bulletin - August 2026

Business Conditions

Business activity fell through the second quarter of the year, however businesses reported a slight improvement in conditions and optimism in June.

Business Activity

• The monthly PMI business survey for Scotland indicates that business activity fell through the second quarter of the year albeit the pace of contraction eased slightly in June (47.6) (a reading below 50 indicates contracting business activity). The survey continues to indicate that falling new business orders and weak demand partly underly the current weakness in activity.
• However there were some indications of improving conditions in June with staffing levels remaining broadly stable over the month, while there was a further slight easing in inflationary pressures from their spike in April. Reflecting this, business optimism for the year ahead also improved slightly in June although remained notably below its level in February prior to the escalation of the conflict in the Middle East.^[10]

• Latest Business Insights and Conditions Survey (BICS) data for June presents a similarly mixed picture with a slightly higher share of businesses reporting an increase in demand over the month than a decrease in demand (14.5% compared to 14%). 50.6% of businesses reported that demand stayed the same. This varies by sector, with businesses most likely to report decreased demand in the accommodation and food services sector (24.3%, compared to 13.6% reporting an increase).^[11]

Business Concerns

• The latest BICS data from July shows that falling demand remains the most reported main business concern for the coming month (17.4%) while there has been a further increase in the shares of businesses reporting worker shortages (11.9%) and competition with other UK businesses (9.8%) as main concerns.
• In contrast, there has been a further fall in the share of businesses reporting energy prices (7.1%) and inflation of goods and services (6.3%) as main concerns. Both had increased following the escalation of tensions in the Middle East at the end of February and the sharp rise in energy and fuel prices, however have fallen back to around their pre-conflict levels and potentially reflects the easing in oil and fuel prices in June and into July.

• When asked specifically about how concerned they are about energy prices, latest data for July does indicate that there has been a fall in the share of businesses reporting that they are very concerned (18.6%, down from 27.2% in June). However there has been an increase in the share reporting that they are somewhat concerned (54%, up from 45.7%) and a decrease in the share reporting they are not concerned (15.9%, down from 18%).

• The ongoing concern about energy prices is broad based across industries, however remains most notable in the transport and storage sector (84.6%) and accommodation and food services sector (83.0%).

Business Costs

• Business cost pressures have been exacerbated over the second quarter of the year from the sharp increase in energy and fuel prices. However latest data for June indicate the pace of change moderated during the month as the reduction in military action resulted in a fall in wholesale energy costs and fuel prices.

• UK producer input prices rose by 7.3% annually in June, down from 9.3% in May and 8.1% in April. The increase in crude oil prices over the past year (42.3%) remains the main driver of the annual increase in input costs, however the fall in input price inflation from its recent peak in May partly reflects that crude oil prices fell 20.8% in June.^[12]
• The PMI business survey for Scotland also indicated that business input cost inflation eased over May and June, while the feed through to output prices remained more stable.^[13]

• Furthermore, BICS data from July shows that the share of businesses reporting that they expect to increase prices on goods and services sold, fell for a third consecutive month (12.1%, down from 16.3% in June), while an increased share of businesses expect prices to remain unchanged in August (67.6%, up from 60.5%).

• For businesses expecting to increase prices, labour costs remains the main driver with 30.9% reporting it as a factor, albeit this has fallen from its recent peak in April (45.3%).
• The share of businesses reporting energy prices and transportation or haulage costs as factors for price rises rose sharply following the increase in oil and gas prices since March, however have also eased back as prices have moderated in June and into July.

Business Optimism

• The ongoing uncertainty and inflationary risks from the conflict in the Middle East continues to weigh on business optimism. However, there are indications that the period of reduced military action in June and progress in negotiations, had a positive impact on business sentiment.
• The PMI business survey for Scotland reported that business optimism improved slightly for a second consecutive month in June, albeit remains notably below its pre-conflict level while Scottish Business Monitor data collected in June also reported that while business optimism remains subdued, businesses have become less pessimistic about the economic outlook.^[14],[15]
• Latest BICS data shows that there has been a slight decrease in the share of businesses expecting performance to improve in July (28.2%, down from 30.5%), however there has been an increased share expecting performance to stay the same (44.2%, up from 39.5%) and a further decrease in the share expecting performance to decrease (8.9%, down from 10.3%).

• The Scottish Business Sentiment Index (BSI) provides a real-time measure of business confidence in Scotland by analysing sentiment in news articles related to corporate and industrial developments. Latest data indicates that the BSI increased in July to -0.12 having improved moderately in recent months from a fall in the index between the second half of 2025 through to April 2026. The index has risen back above the average for 2025 (-0.24).^[16],[17]