Scotland saw one of the sharpest falls in business confidence of any UK region this quarter. The findings from the Business Confidence Monitor (BCM) Q2 2026 report suggest that ongoing uncertainty and cost pressures are increasingly influencing business decision-making, with many firms adopting a more cautious outlook for the year ahead.
Scotland regional feedback on Q2 BCM 2026:
Scotland was noted to have a large drop in confidence in the BCM over the last quarter. The key takeaways were:
Business activity fell back into contraction
- The Royal Bank of Scotland Business Activity Index dropped below the 50-growth threshold in April, falling to 48.0 from 50.1 in March, meaning Scottish private sector output declined for the first time in four months. The May reading worsened further to 47.1, the sharpest fall in output for 14 months. Scottish private sector companies posted a further reduction in new business during May, extending the current run of decline to 20 months. The pace of contraction was the fastest since January 2023. According to anecdotal evidence, increased market uncertainty and rising prices, which were both linked to the ongoing war in the Middle East, had dampened sales.
- News release: Royal Bank of Scotland Growth Tracker
- RBS: Business activity declines in Scotland as price pressures remain high in May | Scottish Financial News
Rising costs, energy prices and supply-chain disruption intensified
- Scottish businesses faced mounting pressure from higher input costs, fuel and energy prices, and supply-chain disruption. In April, 80.1% of Scottish businesses said they were very or somewhat concerned about energy prices, while 57.9% reported supply-chain disruption concerns, up from 52.0% in March.
Exporters were hit by tariffs and global uncertainty
- US tariffs became a material concern for Scottish exporters, especially goods exporters. Around 12.5% of all Scottish businesses reported being affected by US tariffs, rising to 28.3% among goods exporters. Export costs also rose sharply, with 51.6% of exporters reporting higher export costs in the year to March 2026, up from 34.8% in December 2025.
Further reading:
This was all compounded by a number of changes in the Scottish Parliament and Scottish Government:
- The 2026 Scottish Parliament election produced a more fragmented Holyrood.
- The SNP remained the largest party with 58 seats but fell short of the 65 needed for a majority.
- There was significant turnover, with 64 new MSPs elected — almost half of the 129-seat chamber and the largest intake of new MSPs since devolution.
- The result points to a minority Scottish Government, meaning more negotiation across parties and potentially greater uncertainty around the delivery of policy priorities.
- A reshaped Scottish Government is bringing changes in senior portfolios and policy emphasis, with housing, economic growth, net zero, skills and regional investment all remaining key areas to watch.
- The fiscal situation – a £5 billion hole in the public finances by the end of the decade – has been barely mentioned, but cuts lie ahead for the new government.
Further reading:
Insight and feedback from members highlight
- Senior partners talked about Scotland’s ability to attract skilled people, experienced professionals and foreign direct investment. There was recognition of Scotland’s strengths, but also concern that tax, skills shortages, and affordability could make it harder to attract and retain people. If Scotland wants to compete for talent and investment, it needs to be an attractive and affordable place to live, work and build a career. There was a general feeling that the current make-up of Scottish Government may not ensure business needs are a priority.
- Exports of Scottish salmon and Scotch whisky to the US fell sharply at the start of the year as the impact of Donald Trump's tariffs weighed on demand.
Further reading:
BCM report
Read the full Scotland Business Confidence Monitor report for the detailed survey findings and regional economic analysis
