Scottish economic bulletin: February 2026

Business Conditions

Business activity was more stable in January after a challenging fourth quarter of 2025, accompanied by a slight improvement in business optimism.

Business Activity

• Business activity and confidence remained subdued in the fourth quarter of 2025, however business surveys indicate slightly improved stability in January, albeit that demand remains weak overall.
• The Scottish Business Monitor for Q4 2025 reported that the volume of business activity (sales) improved over the quarter (net balance rose from -12.3 to -8.6), however the value of business activity (turnover) weakened (net balance fell from -11.4 to -14.6). This indicates that while sales showed some signs of recovery over the quarter, this did not fully feed through to an improvement in turnover. The Quarterly Economic Indicator for Q4 2025 also indicated that sales performance remained subdued over the quarter across sectors.^[6],[7]

• Monthly BICS data provided more positive indications for the month of December itself, with an increase in the share of businesses reporting that domestic demand increased over the month (21.6% up from 17.0%), while the share of businesses reporting that demand decreased fell from 21.9% to 17.3%.^[8]
• Most recently in January, the RBS Growth Tracker business survey indicated that overall business activity was stable during the month with a reading of 50 following four consecutive months of declining activity (a reading below 50 indicates contracting business activity). However, underlying demand remained weak with a further fall in new orders, albeit to a lesser extent than in December. Higher cost of living and economic uncertainty were cited by businesses as weighing on new orders.^[9]

Business Concerns

• Latest BICS data for February shows that similar key business concerns during 2025 have continued into the start of 2026. Falling demand of goods and services continues to be the most cited concern by businesses in Scotland (16.5%) followed by taxation (10.9%) and competition with other UK businesses (10.1%).

• The increase in concern regarding worker shortages which picked-up towards the end of 2025, particularly in Admin and Support Services, Transport and Storage and Construction sectors, has eased somewhat for February.

Business Costs

• Cost pressures remained elevated for business in the final quarter of 2025 and businesses expect this to continue in the first half of 2026.
• The Scottish Business Monitor for Q4 2025 showed that 80.7% of businesses reported higher total costs, up slightly from 78.4% in Q3 2025, with the largest shares citing higher labour and input costs. Businesses expect this pattern to continue in the first half of 2026 with 89.7% of businesses expecting to face higher total costs during this period. This was echoed in the Quarterly Economic Indicator for Q4 2025 with 77% of firms reporting increased pressure from labour costs.
• Most recently in January, the RBS Growth Tracker business survey indicated that business input cost pressures continued to increase at the start of the new year, albeit at a slower pace than at the end of 2025. Similarly, the pace of output price inflation also eased indicating that while businesses continued to pass on costs to clients to protect margins where possible, it was to a lesser extent than at the same point last year.^[10]

• BICS indicators for February also show a slight easing in the proportion of businesses expecting the prices of their goods and services to rise (21.3%, down from 22.9%), and similarly, the share is notably lower than at the start of 2025. Challenging demand conditions means that not all business are passing through costs with 60.8% of businesses expecting the price of their goods and services to stay the same in February.
• Labour costs continue to be the main factor causing businesses to consider price increases (40%) followed by raw materials prices (22.2%) and energy prices (21.7%). The reporting of these factors has increased from the second half of 2025.

Business Optimism

• Looking ahead, in the face of cost challenges and weak demand, business sentiment remains subdued, however there are some indications it may be improving.
• The Scottish Business Monitor for Q4 2025 reported that business optimism for sales over the first half of 2026 remained in negative territory (-7.5%) however did improve by 5.1 points over the quarter.
• Latest BICs data indicates a slight improvement in optimism in January with the share of businesses expecting performance to increase over the next year rising to 31.4%; its highest share since June 2025. Furthermore, the share of businesses expecting performance to decrease fell to 8% (from 8.7%). However, the largest share of businesses continue to expect performance to remain unchanged (42.8%, up from 39.1% in December).

• Similarly, the RBS Growth Tracker for January reported that business optimism improved slightly over the month (59.8) with an increasing balance of businesses expecting growth in the year ahead.^[11]