Scottish economic insights: September 2026

Overview

This edition of the Scottish Economic Insights report reports on the economic conditions in the first half of 2026 and the year ahead.

Global economic conditions remain challenging, with significant geopolitical risks and trade uncertainty heightened by the ongoing conflict in the Middle East. Although oil prices remain lower than the peaks seen in April, European natural gas prices and government bond yields have continued to rise in recent months. This has contributed to rising prices for consumers and deteriorating UK public finances, providing headwinds for the economy in the year ahead.

Despite these challenges, economic performance in Scotland has remained resilient. Scotland’s economy grew by 0.7% in the latest quarter and 1.1% over the year. Although it is expected to rise, inflation remains lower than at the start of the year, with food price inflation also slowing, and this report looks at recent trends in food prices and incomes in more depth. Lower inflation has helped the Bank of England hold interest rates unchanged at 3.75%, despite concerns over energy prices. However, there are signs of stress, with unemployment increasing to around 5% for the first time since 2016 and the Energy Price Cap rising by around 17% across July and October, and a further large increase in the Energy Price Cap forecast in January.

These pressures are reflected in ongoing weakness in sentiment indicators. Consumer sentiment has recovered from the sharp fall in April, but declined again in July and remains below the level at the start of the year, with households increasingly concerned about their own finances. This report provides detailed disaggregation of the Consumer Sentiment Index, highlighting how different groups have responded to recent economic shocks.

Business sentiment has also weakened since the start of the year, although the latest data show that sentiment improved slightly in July whilst remaining in negative territory. Businesses’ top concern remains falling demand, although energy prices are now almost equally cited. The persistence of subdued demand and pressures on profit margins have contributed to a softening in the labour market, with payrolled employment falling slightly over the year. Earnings growth has eased also but still remain positive in real terms. As noted above, unemployment has also increased, although claimant count remains low at 3.6%.

Looking ahead, inflation is expected to rise further in the coming months, although the outlook is uncertain and will depend on the path for energy prices. Despite the resilience shown by the economy, growth this year is likely to be lower than official forecasts in January 2026 (1.3 per cent), as external headwinds continue to create pressures for businesses, households, and government.

As well as the analysis of consumer sentiment and food price inflation and incomes, this Insights Report also provides updated analysis on the impact of EU exit on trade in goods since 2021.