Scottish economic bulletin: July 2026

Overview

This edition of the Scottish Economic Bulletin reflects on latest data from May and June, as the impacts of the energy shock from the Middle East conflict continue to feed through the economy. Since last month’s Bulletin, global oil and gas prices have fallen notably on the back of the US-Iran Memorandum of Understanding to continue the ceasefire, with markets and business hopeful that the Strait of Hormuz will reopen, allowing global oil and gas supply chains to start to recover. The agreement remains fragile with some disruption to date, but oil prices have returned towards their pre-conflict levels.

The Scottish economy grew 0.1% in the three months to April, stable from the three months to March. However, the pace of growth is subdued and continues to reflect business survey evidence showing that business activity and demand remain subdued. In recent months, this partly reflects the impacts of the Middle East conflict on energy and fuel costs faced by households and businesses, and its effect on consumer and business sentiment.

Business conditions have remained challenging with Producer Price Inflation rising to 8.7% in May and business concerns relating to inflation and energy prices remaining elevated in the first half of June. However, business survey data indicates the rate at which cost pressures have risen and their feed through to prices have moderated slightly.

In May, consumer price inflation remained stable at 2.8%, continuing to partly reflect the fall in the Energy Price Cap in April with higher energy prices continuing to be mainly experienced through motor and heating fuels. Despite the fall in wholesale oil and gas prices in June, the spike in energy prices is still feeding through the economy with the Bank of England expecting inflation to rise to around 3% in Q3 2026 and 3.25% in the fourth quarter as the Energy Price Cap rises in July and business costs continue to feed through to consumers.

Scotland’s labour market has weakened over the year, with unemployment at 4.3% and the number of payrolled employees having fallen by 7,600 over the year. Earnings growth nonetheless remains robust, with earnings growing by 5.3% in nominal terms and by 2.4% in real terms.

Reflecting these factors, latest data for May shows some improvement in business and consumer sentiment, albeit mild, with sentiment still notably below pre-conflict levels. The Scottish Consumer Sentiment Indicator rose to a new three-month high, but remains firmly in negative territory. Consumer sentiment is most negative in attitudes to spending and current household finances, reflecting the cost of living pressures faced.

Looking ahead, developments in the Middle East and resulting price and market expectations relating to the supply of oil and gas suggest an improving near term economic outlook, albeit this is conditional on resumption of supply and transit routes for shipping, and uncertainty remains.