Scottish economic bulletin: June 2026

Overview

This edition of the Scottish Economic Bulletin reflects on data from the first quarter of the year and into April and May, during which time, impacts from the conflict in the Middle East have started to emerge in the Scottish economy.

The Scottish economy grew 0.1% in the first quarter of 2026, slowing from 0.2% growth in the fourth quarter of 2025. The subdued pace of growth is reflective of business survey evidence in which businesses have reported that new orders and demand conditions remained weak over the first quarter of the year and have weakened further over March and April. Most recently, this partly reflects the impacts that the conflict in the Middle East is having on energy and fuel costs facing households and businesses and is weighing on business and consumer sentiment.

Global wholesale oil and gas prices remain significantly above their pre-conflict levels and are highly sensitive to expectations regarding the duration of both the conflict and the constraints on shipping access through the Strait of Hormuz. Despite this, UK inflation fell to 2.8% in April reflecting that most household energy costs are currently protected by the Energy Price Cap, which fell 7% in April, with households to date mainly impacted by the rise in petrol, diesel and heating fuel prices.

Stronger inflationary pressures are building however and are expected to develop over the second half of the year with inflation expected to rise to around 4%. This reflects that the Energy Price Cap will rise by 13% in July and that the increased costs that businesses are facing will further pass through to consumer prices as businesses increasingly need to maintain margins.

The S&P Global Purchasing Managers Index for April reported that the input price inflation indicator rose to its highest level since the end of 2022 (74.4). The output price indicator has also risen, but to a lesser extent indicating that some businesses at this stage are only partly passing through costs to clients and are absorbing some of the increase in cost.

This has been reflected in a sharp fall in both business and consumer sentiment over March and April. The Scottish Consumer Sentiment Indicator fell to its lowest level since the start of 2023, in part reflecting a weakening in attitude towards spending, while businesses ongoing concerns of weak demand has been increasingly accompanied by concerns of energy and wider cost pressures, emphasising the challenge in maintaining profit margins.

Scotland’s labour market remains relatively tight but has weakened over the past year with unemployment rising to 4.4% and the number of payrolled employees falling to its lowest level since the start of 2023. The pace of earnings growth at this point remains robust and rose in April, growing 2.7% in real terms annually. However, the expected pick-up in inflation during the year, combined with subdued demand, a loosening labour market and ongoing elevated uncertainty, presents a more challenging outlook for businesses and households to navigate in the months ahead.