14th October 2026
Scotland’s economy has continued to grow, but businesses are facing a difficult combination of rising energy prices, subdued demand and increasing uncertainty about the months ahead.
The latest Scottish Government Economic Bulletin, published on 13 October, paints a mixed picture. Economic growth has been resilient during the first half of 2026, with output increasing by 0.7% in the three months to July. Annual growth reached 1.1%.
But beneath those figures are signs of strain. Business surveys continue to indicate weak demand, recruitment has become more difficult in parts of the economy, and renewed increases in oil and gas prices are adding to the pressure on employers.
The warning is that an economy can continue to grow while individual businesses struggle to make ends meet.
Energy costs return to the top of the agenda
Energy prices are once again a major concern for Scottish employers.
The Scottish Government's latest Business Insights and Conditions Survey found that 73.3% of businesses with at least 10 employees were very or somewhat concerned about energy prices. Concern was particularly high in construction, at 82.9%, and transport and storage, at 84.1%.
Rising fuel prices are creating additional problems for businesses that depend on vehicles, deliveries and machinery. More than 87% of transport and storage businesses surveyed were concerned about fuel prices, while the figure for construction was even higher.
These costs can spread throughout the economy. A haulage company facing higher diesel bills may introduce a fuel surcharge. A builder paying more to run machinery and transport materials may have to increase quotations. Food producers and retailers can face higher distribution costs, which may eventually feed through to prices paid by consumers.
The difficulty is that businesses cannot always pass on every increase. Where customers are already cutting back, putting prices up may mean losing sales to competitors.
That leaves many employers caught between higher costs and customers who are reluctant or unable to pay more.
Growth does not mean every business is thriving
The Scottish economy's growth figures offer some reassurance, but they should not be mistaken for evidence that all sectors are doing well.
The services sector has been an important contributor to growth, offsetting more modest performance in production and falling construction output.
Different industries also face different pressures. A business providing essential services may continue to attract customers, while a retailer selling non-essential goods could be more exposed to household budget pressures.
For smaller businesses, even a modest increase in operating costs can make a significant difference. Large companies may have more bargaining power with suppliers, greater access to finance and the ability to spread overheads across many outlets. A small independent business has fewer options.
The latest survey also found that 23.8% of businesses reported an increase in the prices of goods or services they bought in August compared with July. Only 8% reported increasing the prices of the goods and services they sold.
That gap illustrates the difficulty of passing higher costs on to customers.
Jobs and investment could be affected
The labour market is another area of concern.
The Scottish Government reports that unemployment rose to 5.1% in the three months to July, while the number of payrolled employees fell to its lowest level since the start of 2023.
Some recent business survey indicators suggest that staffing levels may be stabilising. Nevertheless, employers facing uncertainty about demand and higher employment costs may think twice before recruiting additional staff.
The consequences could extend beyond the immediate loss of vacancies. If businesses delay investment, postpone expansion or reduce working hours, the effects may be felt by suppliers, households and local economies.
Young people entering the jobs market could be particularly vulnerable if employers decide to limit recruitment or rely on existing staff.
There is also a danger that businesses postpone improvements to equipment, premises and technology because they cannot be confident that the investment will generate sufficient returns.
What does this mean for the Highlands and Islands?
The national picture has particular relevance to the Highlands and Islands, where many businesses face additional transport costs and operate in smaller markets.
A business in Caithness or Sutherland may have to transport materials over long distances, depend on deliveries from central Scotland or face higher costs when sending products to customers elsewhere in the UK.
Tourism businesses can also be affected by higher fuel prices, as visitors consider the cost of travelling long distances. At the same time, rising household bills may leave people with less money to spend on holidays, meals out and other discretionary purchases.
Not every business will experience the same problems. Energy developments, specialist engineering, food production and other sectors may offer opportunities for growth. But those opportunities need to translate into sustainable contracts and employment rather than relying on announcements about projects that may take years to materialise.
For rural communities, a broad range of viable employers is particularly important. The loss of one significant business can have a much greater impact where there are few alternative jobs nearby.
What should the Government do?
The immediate challenge is to distinguish between temporary cost pressures and deeper weaknesses in Scotland's economic performance.
Government support cannot compensate indefinitely for an economy in which businesses struggle to find customers or cover their costs. Nor should every increase in business expenditure automatically lead to a request for public subsidy.
However, policymakers need to understand which pressures are most damaging and whether existing tax, energy and investment policies are helping or hindering viable businesses.
There is also a case for ensuring that public investment creates lasting economic activity, particularly in places where private investment is difficult to attract.
The Scottish Government's latest figures suggest that growth has not disappeared. But they also show that confidence remains fragile and that rising energy prices could weaken activity in the second half of the year.
A warning rather than a verdict
Scotland is not necessarily heading towards a recession. Economic output has continued to grow, and some indicators have improved.
Nevertheless, rising energy costs, weak demand and a cooling labour market are an uncomfortable combination. If inflation increases while households and businesses become more cautious, the economy could face a difficult period.
For employers, the priority will be controlling costs while retaining enough confidence to invest and recruit. For the Government, it will be ensuring that economic growth translates into viable businesses, secure jobs and opportunities across the country.
The coming months will show whether Scotland can maintain its recent resilience or whether the renewed energy shock begins to undermine that progress.