Scottish growth is subdued but stable, with real earnings now rising and inflation easing, which gives investors a cautiously constructive backdrop for the second half of 2026.
Growth and sectors
Scotland’s GDP grew 0.1% in the three months to April 2026, flat on the previous quarter and below the UK’s 0.7% pace, leaving output 0.9% higher than a year earlier. Services and construction are doing the work: services output rose 0.1%, with wholesale, retail and motor trades up 1.6% and information and communication up 2.1%, while construction grew 1.5% over the quarter, its fastest pace since mid‑2023. Production contracted 0.2% and manufacturing fell 1%, extending a weaker run for industry.
Inflation and policy
Headline inflation has continued to ease. UK CPI was 2.8% in May, down from 3.3% in March after April’s 7% cut in Ofgem’s energy price cap, though the cap rose again by 13% at the start of July. The Bank of England left Bank Rate at 3.75% in June and now expects inflation to sit around 3% in the third quarter and a little over 3.25% in the fourth, lower than its April forecast but still above target. For investors, that points to a slower, more data‑dependent path to any future rate cuts rather than a rapid loosening.
Labour market and earnings
The labour market has cooled without breaking. Scotland’s unemployment rate rose to 4.3% in the three months to April, still below the UK’s 4.9%, while the employment rate slipped to 74.3% and economic inactivity edged up to 22.2%. PAYE data show payrolled employee numbers down 0.3% over the year to May, at their second‑lowest level since early 2023. Against that, nominal median monthly PAYE pay rose 5.3% to £2,669, with real earnings up 2.4% — more than double the average real pay growth seen over the previous six months. That mix of modest growth, softer hiring and firmer real incomes is the operating environment investors will be planning against.
