Scottish Business Activity Falls Further in July, Employment Rises -Royal Bank
Business activity across Scotland declined again in July, according to the latest Royal Bank of Scotland Growth Tracker, as demand conditions remained challenging.
There were some positive developments, however, with inflationary pressures easing, payrolls rising, and confidence around the year ahead improving.
The headline Royal Bank of Scotland Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of Scotland’s manufacturing and service sectors – slipped from 47.6 in June to 47.3 in July.
This signalled a further decline in Scottish private sector activity, extending the current run of contraction to four months. Companies reporting lower activity linked this to weaker economic conditions, geopolitical uncertainty and a lack of new orders.
After rising slightly for the first time in three months in June, employment at Scottish private sector companies rose again in July. Furthermore, the pace of job creation increased to its fastest since September 2024.
Sector data indicated that the upturn was driven by service providers, as a marked decline in payrolls was seen among goods producers. Services firms often linked staff hiring to expectations of new projects.
Commenting on the Tracker’s findings, Judith Cruickshank, Scotland Board Chair, Royal Bank of Scotland, said: “Scottish firms signalled a mixed start to the second half of the year according to our Royal Bank Growth Tracker data. Activity continued to decline, reflecting subdued demand and a sharp fall in new orders.
“However, business optimism continued to strengthen from April’s recent low. At the same time, firms expanded payrolls, with employment rising at the fastest rate for nearly two years. Inflationary pressures also eased, reducing potential headwinds to demand.
“Overall, while Scotland lagged behind the wider UK picture in terms of falling business activity and lower confidence, it stood out for the resilience of its labour market. As we continue into the second half of 2026, we may see this increased hiring translate into increasing business activity if inflation continues to fall.”
Performance in relation to UK
Output at the UK level rose for the first time in three months, with ten of the 12 monitored regions and nations recording growth. Yorkshire & Humber was the only other area to report a decline, though their pace of reduction was slower than that seen in Scotland.
Scottish private sector firms reported a twenty-second consecutive monthly fall in new orders in July. The rate of reduction was faster than in June. Companies that reported a decline attributed it to subdued economic conditions and a reluctance among customers to commit to new orders.
There were also mentions of weaker demand across the housebuilding sector in particular. Among the 12 monitored UK regions and nations, Scotland posted the steepest decrease in sales in July. In contrast, new orders rose at the UK level for the first time in three months.
Despite the worsening demand trend, Scottish firms’ expectations regarding future output recovered further from the low seen in April.
Companies were at their most confident in four months, supported by hopes of stronger sales pipelines, new projects and greater efforts to target new sectors and clients. Even so, business sentiment remained historically subdued overall.
Furthermore, across the 12 monitored UK regions and nations, only Northern Ireland recorded a lower level of optimism than Scotland. Aside from the broadly stable employment picture seen in Northern Ireland, all other monitored UK regions and nations recorded further declines in staffing levels during the latest survey period.
Outstanding business at private sector firms in Scotland fell again in July, extending the current sequence of decline to one year. The rate of depletion was sharp and the fastest in four months. Panellists noted that fewer new orders enabled them to work through existing backlogs.
Signs of spare capacity were evident across all monitored UK areas except London, where outstanding business was unchanged. Private sector firms in Scotland reported a further marked rise in costs during July.
Companies commonly linked the increase to higher wage bills, as well as elevated material and shipping costs. Although the rate of inflation remained historically high, it eased further from April’s recent peak to the weakest since February.
Cost pressures faced by Scottish firms were only slightly weaker than that seen across the UK as a whole. Alongside the softer rise in input costs, charges levied for Scottish goods and services also increased at a slower pace in July.
The respective seasonally adjusted index fell for a third successive month to its lowest since February. In fact, among the 12 monitored UK regions and nations, Scotland recorded the weakest rate of charge inflation. South African Rand Momentum Slows Ahead of Economic Data
