Scotland’s private sector throws up mixed messages at start of second half

Royal Bank of Scotland’s latest growth tracker - a seasonally adjusted index that measures the month-on-month change in the combined output of the nation’s manufacturing and service sectors - fell to 48.7 in July from 50.9 in June. Any reading below denotes contraction.

This signalled a renewed fall in private sector activity following two consecutive months of growth.

However, the underlying data also showed that the recent decline in manufacturing output had eased, while services activity ticked down slightly after growing solidly in both May and June.

Businesses continued to report challenges securing new work, though July’s reduction in new orders was described as “modest and less pronounced” than the average recorded in the first six months of 2025.

Judith Cruickshank, chair, One Bank Scotland Board at Royal Bank of Scotland, said: “The start of the second half of the year largely mirrored the conditions observed in the first six months of 2025, with some positive signs in the services sector seen alongside more challenging conditions facing manufacturers.

“Encouragingly, the accumulation of outstanding work, which points to pressure on business capacity, could create opportunities for job growth in the coming months. Notably, the uptick in backlogs marked the first increase in 14 months, with Scotland defying the broader UK trend.

“Moreover, while nearly all parts of the UK highlighted challenges facing local labour markets, Scotland emerged as one of the few areas demonstrating resilience.

“Scottish firms have also displayed flexibility regarding pricing,” she added. “Although cost pressures have intensified, charges for Scottish goods and services increased at a softer pace, marking the weakest rise in a year. In light of current demand headwinds, Scottish firms are trying to stay competitive, even at the expense of their own profit margins it may seem.”

Scottish firms continued to project an expansion in output over the coming 12 months in July. Plans to introduce new products and hopes of improved demand from both domestic and international markets underpinned the positive sentiment.

The level of optimism north of the Border did however tick down slightly from June’s eight-month high. Of the 12 monitored UK regions and nations, Northern Ireland recorded the weakest outlook, and the south east of England the strongest.

The seasonally adjusted employment index posted slightly below the neutral mark of 50 in July, indicating a dip in Scottish private sector payroll numbers. Some survey respondents said they had reduced their headcounts in line with reduced production requirements.

Meanwhile, July’s data showed a marked rise in costs faced by Scottish private sector firms. The rate of inflation was the fastest in three months and in line with the UK rate, RBS noted.

Rising supplier prices, global uncertainty and higher labour costs arising from an increase in employers’ national insurance contributions and minimum wages were reasons said to have pushed up expenses.

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