Scotland’s private sector sees ‘clear turnaround’ after strongest rise in activity in two years
“While services were the main growth engine, manufacturing also provided a modest lift” – Iain Morrison, Royal Bank of Scotland
Scotland’s private sector has seen its strongest upturn in activity in more than two years, a new report suggests.
Royal Bank of Scotland’s latest growth tracker data points to stronger business conditions across the private sector at the start of the final quarter of 2026. Firms recorded fresh increases in both output and new orders, while staffing levels rose further and business confidence improved, according to the report.
The tracker’s headline 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 - posted above the neutral mark of 50 for the first time in seven months in October. The latest reading of 52.4 was up from 48.8 in September, indicating the strongest rise in activity since August 2024.
Renewed increases in activity were recorded by manufacturers and service providers, RBS noted. Anecdotal evidence often linked growth to improved customer demand and firmer economic conditions.
Scottish private sector employment rose for a fifth consecutive month in October. Payrolls were raised to meet current production needs and expand capacity for anticipated projects. However, the pace of job creation was the slowest in four months.
Iain Morrison, Scotland managing director, commercial mid-market, Royal Bank of Scotland, said: “October marked a clear turnaround for Scotland, with output returning to growth. While services were the main growth engine, manufacturing also provided a modest lift.
“For the first time in over two years, demand improved, with new business expanding. Employment also continued to rise, albeit at a slowing pace compared to the previous four months. Together, these positive indicators suggest a more upbeat end to the year.
“However, inflation remains high and continues to intensify,” he added. “This presents a threat that could choke off the return to growth for Scottish businesses that we are seeing in this report.”
Output across the UK as a whole was up for a fourth month running in October. The pace of growth was the fastest in eight months and slightly quicker than that seen for Scotland.
Scottish private sector organisations reported a renewed rise in new business at the start of the fourth quarter of 2026, as the respective seasonally adjusted index posted in growth territory for the first time in 25 months.
The upturn was driven by the service sector, with firms attributing higher sales to new projects, client wins and improved demand conditions.
Scotland was one of ten UK nations and regions, out of the 12 tracked, to see new business rise.
Adjusted for seasonal factors, the report’s input prices index posted above the no-change 50 level to signal a “substantial and historically strong” increase in cost burdens faced by Scottish private sector firms in October.
The rate of inflation was the sharpest in four months, and only slightly weaker than the UK-wide trend. Panellists often commented that higher fuel costs had pushed up expenses. Higher raw material and labour costs were also cited.
Increased costs were passed on to customers where possible, as Scottish businesses raised their charges for goods and services in October.
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