Scottish economic bulletin: February 2026

Overview

The Scottish economy continued to show stable growth during the final quarter of 2025 with indications of improving business and consumer confidence for the year ahead. However, latest data also indicate that subdued demand conditions have continued into the new year alongside a further weakening in some labour market indicators, while the rise in global geopolitical risk and continued elevation in world trade uncertainty present further headwinds for the year ahead.

The latest GDP data indicates that Scottish economic growth remained broadly stable in the 3‑months to November - output grew 0.3% in the 3-months to November, driven by services and production, offsetting a fall in construction.

Business surveys for the start of 2026 indicate that overall demand conditions facing businesses remained subdued in January albeit there were some signs of improved stability compared to the fourth quarter of 2025. Consumer sentiment improved slightly in December, particularly relating to households financial situation, however remained weak overall and in negative territory.

The weakness in demand also continued to be reflected in looser labour market conditions. Unemployment remained low at 3.7% however the number of payrolled employees fell by 8,700 over the year to December, with the RBS Growth Tracker indicating that businesses continued to reduce staffing levels in January. Labour costs remain key cost pressures for businesses, leading in part to both the reduction in staffing levels and the need to raise prices to protect margins. However, pay growth is expected to moderate this year with the recent Bank of England pay survey indicating the average pay settlement will fall from 4% in 2025 to 3.4% in 2026.

Consumer price inflation picked up to 3.4% in December, however it is forecast to fall to around 3% in the next few months and then to around the 2% target rate in April. In the short term, this largely reflects changes in household energy prices and wider regulated prices, however the current weakness in demand and looser labour market have the potential to reduce inflationary pressures more broadly.

Looking ahead, the Scottish economy is forecast to grow 1.3% in 2026 with stable growth expected to be supported by lower inflation and looser monetary policy. There are indications that business optimism improved slightly through the turn of the year, however the increase in global geopolitical risk and continued elevation in world trade uncertainty in January continues to highlight the risks of external headwinds escalating with the potential to impact supply chains, investment and consumer and business sentiment more broadly. Market movements such as the recent rise in gold price as investors seek to contain risks, have reflected that immediate uncertainty and while some of the short term tension has eased, it emphasises the challenging and uncertain global landscape that businesses and consumers will have to navigate in the year ahead.