Scottish Economic Bulletin: November 2026

Overview

The Scottish economy has remained resilient despite a more challenging economic backdrop. In the three months to August GDP grew by 0.3% and was 1.3% higher over the year, supported by continued growth in the services sector. However, growth has slowed from the pace seen earlier in the year, and recent business surveys present a mixed picture of activity through the autumn.

Inflation rose to 3.5% in September, with higher motor fuel prices accounting for much of the increase, and energy price pressures are expected further increase costs for household and business, contributing to higher inflation over the coming year. The Bank of England now expects inflation to rise to around 5% by the middle of 2027, and in response it increased the Bank Rate to 4.0% in November, the first increase since August 2023.

Inflation reflects a challenging cost environment for businesses. Recent increases in energy and fuel prices have led to renewed concerns about business costs, and UK producer input prices rose by 8.3% annually in September, up from 6.7% in August and to their highest rate since May. There are also signs that firms are increasingly seeking to pass higher costs on to customers as inflationary pressures persist. Business confidence remains mixed, and although firms remain broadly positive about growth prospects, forward-looking sentiment has softened amid rising energy costs, higher interest rates and increased uncertainty around the outlook.

Inflation is also weighing on consumer sentiment, which weakened in September, reversing some of the improvement seen over the summer. While confidence remains above the lows recorded earlier in the year, households have become more cautious about the economic outlook and spending prospects, with inflation eroding the real value of pay growth.

Despite these challenges, labour market conditions have shown signs of stabilising in recent months after weakening over much of the past year. Recent indicators suggest labour demand has become more stable, with payrolled employment picking up in the latest month, although it remains lower than last year, and whilst unemployment has also risen over the year it fell in the latest quarter to 4.3%. Nevertheless, elevated labour costs and uncertainty surrounding the economic outlook continue to present downside risks to hiring intentions.

Overall, the economic environment has become increasingly constrained by the persistence of elevated and volatile energy prices, which are yet to fully feed through. Although recent indicators point to continued resilience in economic activity and emerging signs of labour market stabilisation, higher inflation and tighter financial conditions are expected to weigh on household and business activity, resulting in a weaker growth outlook than anticipated earlier in the year.