RBS regional growth tracker: Scotland’s private sector prospects for 2026

However, staffing levels north of the Border are stabilising and businesses “remain hopeful that 2026 will be a year of growth”, the latest Royal Bank of Scotland (RBS) regional growth tracker suggests.

It said purchasing managers’ index (PMI) data for Scotland signalled further decreases in output and new orders during last month. Despite that, workforce numbers are said to have “broadly stabilised” after two consecutive months of decline, while business confidence regarding the year ahead remained positive.

The headline RBS growth tracker - a seasonally adjusted index that measures the month-on-month change in the combined output of the country’s manufacturing and service sectors - rose fractionally from 48 in November to 48.1 in December, to indicate a fourth successive monthly fall in overall business activity. Any reading below 50 denotes a contraction.

Companies often attributed the latest decline to falling customer numbers and the rising cost of living.

Following marginal cuts to staff numbers in October and November, the report’s seasonally adjusted employment index posted just shy of the neutral 50 level in December, to signal broadly stable employment across Scotland’s private sector - accounting for roughly half the economy. While manufacturing firms mentioned lowering their headcounts due to reduced requirements, this was largely offset by job creation by service providers, who took on additional staff to replace leavers and increase productivity, RBS noted.

Anecdotal evidence from businesses in December suggested that they remained cautiously optimistic about growth in 2026, with some firms citing new marketing strategies and expansion plans in anticipation of strengthening demand.

Judith Cruickshank, Scotland board chair at Royal Bank of Scotland, said: “2025 proved to be a challenging year for Scottish businesses, with the latest growth tracker data signalling further falls in both output and new business.

“It is clear that inflation is continuing to put pressure on companies and customers. The latest data shows steeper increases in input prices at the end of the year, suggesting that margins are tightening.

“Despite these challenges, Scottish firms remain hopeful that 2026 will be a year of growth,” she added. “The jobs market also began to stabilise in December after falls in employment over the last two months.”

The findings for Scotland contrasted last month with a modest increase in output across the UK as a whole.

Scottish private sector businesses continued to highlight challenging demand conditions during December, as overall new business fell for a 15th straight month. The latest decline in sales was the joint-quickest since last March, and on a par with last September. According to anecdotal evidence, new orders had fallen due to market uncertainty and tighter client budgets.

Scotland and the north west of England recorded identical rates of decline in new business that were the steepest of the 12 monitored UK regions and nations. Meanwhile, new orders rose modestly at a UK-wide level.

That said, the level of positive sentiment fell since November and was the second-weakest of the monitored UK regions and nations, with only companies in Northern Ireland less upbeat.

While workforce numbers broadly stabilised in Scotland and the north east of England, employment continued to fall across the other ten UK regions and nations.

A reduction in new orders enabled Scottish businesses to work through outstanding orders during December, thereby resulting in a fifth consecutive monthly fall in backlogs of work. Despite being the least pronounced in the aforementioned sequence, the rate of depletion outpaced the UK-wide average, RBS added.

Businesses in Scotland registered a further increase in input costs at the tail end of 2025. The pace of inflation was found to be the fastest in eight months. Anecdotal evidence frequently linked the upturn to higher wage, supplier and energy costs.

Additionally, only Northern Ireland recorded a faster rate of input price inflation than Scotland across the 12 UK areas in December.

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Scottish firms raised their average selling prices in December as firms looked to pass on some of their higher costs to customers. The pace of output charge inflation was described as “solid” and stronger than seen in November.

That said, the rate of increase in Scotland was among the weakest of the dozen UK regions and nations, with only Yorkshire and Humber recording a slower pace of inflation.

The latest RBS growth tracker comes after it emerged that Scotland was among the more resilient areas of the UK in terms of small business survival, ranking it lower risk than many parts of England, Wales and Northern Ireland.

However, the analysis from flexible workspace provider BizSpace also highlights emerging vulnerabilities, including fragile investment conditions and growing concerns around talent retention, which could test Scotland’s small and medium-sized enterprises (SMEs) as 2026 unfolds.

Each part of the UK was scored out of five, with five indicating the highest danger level. Scotland scored 2.5. Northern Ireland with a score of 5, Wales at 4.5 and the north-west and north-east regions of England, both scoring a four, were ranked in the red “danger” zone.

BizSpace warned that costs were rising everywhere, with Northern Ireland recording the strongest rate of input price inflation, ahead of Scotland and London. Most concerning is the erosion of pricing power, the firm warned.

The east of England and Wales recorded decreases in average prices for goods and services, marking the first instances of overall discounting since early 2021. BizSpace said this suggested many SMEs have exhausted their ability to pass costs onto customers and are now absorbing margin compression.