Businesses signal optimism despite economic weakness

15th May 2026

Business confidence in Scotland showed modest improvement in early 2026, despite all six key indicators of activity staying in negative territory for a sixth consecutive quarter, according to the Fraser of Allander Institute.

The Institute’s latest Scottish Business Monitor (SBM) reveals firms reported continued declines in sales, new business activity, investment and exports, pointing to broad-based economic weakness.

However, business sentiment turned slightly positive for the first time since late 2024.

The results suggest a disconnect between current conditions and expectations. While underlying activity remains subdued, some firms appear to be anticipating stabilisation in the months ahead.

There are also signs that revenues are being supported by higher prices rather than stronger volume-based demand. Turnover improved slightly despite falling sales volumes, indicating that price increases are helping firms offset weaker activity. This may prove difficult to sustain if cost pressures remain elevated.

Sanjam Suri, Knowledge Exchange Fellow at the University of Strathclyde-based Institute, said: “The latest results point to an economy that remains under pressure, with weak activity across most indicators. While the improvement in sentiment is encouraging, it appears to be running ahead of actual economic conditions.

“The key question now is whether this optimism translates into a genuine recovery, or whether firms face further headwinds from rising costs and weak demand.”

Cost pressures continue to weigh heavily on businesses. A large majority of firms reported rising costs, particularly for energy, imports, and distribution, with many expecting further increases over the next six months. This is likely to place additional pressure on margins and future investment decisions.

The survey also highlights emerging structural shifts in the economy. Around half of firms report using artificial intelligence, with adoption increasingly spreading beyond early adopters into sectors such as construction and manufacturing.

Overall, the SBM suggests that the Scottish economy is stabilising, but at a relatively low level of activity, with risks still tilted to the downside.

You can read the full business monitor here