Business Conditions - Scottish Economic Bulletin (January 2026) - Summary

20th January 2026

The latest Business Conditions indicators in Scotland point to a continuing subdued environment for firms at the end of 2025 and into early 2026.

The report shows Scotland suffered with weak activity, rising costs, and persistent demand challenges.

Business Activity is Soft

Surveys show that business activity remained subdued in December 2025, with private sector activity contracting for the fourth straight month.

The Royal Bank of Scotland (RBS) Growth Tracker index for December was below the 50 threshold (48.1) — meaning more businesses reported falling activity than expansion.

Ongoing weakness in new orders — which fell for the 15th consecutive month — was a key factor, as firms cited uncertain markets and tighter client budgets.

Demand and Business Concerns

Business demand conditions weakened further toward the end of 2025, with a larger share of firms reporting lower domestic demand and fewer reporting increases.

Falling demand continued to be the most frequently cited concern for businesses in January 2026, followed by worker shortages — both of which increased as priority issues.

Other concerns include energy costs, competition with other UK businesses, inflation, and taxation, though the share citing taxation and competition eased slightly.

Rising Cost Pressures

Cost pressures for businesses intensified in December, with input price inflation rising to its highest level since April 2025.

Output price inflation also increased, suggesting that some firms tried to protect profit margins despite subdued demand.

Business surveys revealed that a much larger share of firms expected to raise their prices over the next period — the highest level since May 2025 — mainly due to rising labour, energy, and raw material costs.

Business Optimism Moderates

Despite these headwinds, some business optimism remained positive in December, according to the RBS Growth Tracker, though it was slightly lower than in November.

The Business Insights and Conditions Survey (BICS) also showed a mixed outlook, with increases in the share expecting performance to improve, but a modest rise in those expecting performance to fall.

Overall Picture

In sum, the Business Conditions section of the bulletin shows that Scottish businesses are operating in a challenging environment marked by weak activity, persistent demand shortfalls, and rising cost pressures. While some firms remain cautiously optimistic about future performance, subdued demand and inflationary pressures are key concerns influencing business decisions at the start of 2026.

Read the full report HERE