Scotland’s latest PMI figures show business activity finally steadied at the start of the year after four months of decline, though persistent inflation and continued job cuts highlight lingering weaknesses within the economy. 

The headline Royal Bank of Scotland Growth tracker, which measures month-on-month change in Scotland’s manufacturing and service sectors, rose from 48.1 in December to 50.0 in January, with sector data indicating an uptick in growth activity.

While service providers reported customer gains and the launch of new projects, manufacturing firms saw output contract, albeit at a slower rate than previously observed. Overall, though, Scotland reported the most marked reduction in new business across the UK, joining the North West as the only other area to record a fall.

However, a drop in new orders did allow firms to clear backlogs for a sixth month straight, with Scottish businesses showing the fastest rate of depletion since March 2025, allowing a sharper reduction in backlogs than the UK average.

Meanwhile, job cuts across Scotland rose at a modest pace, but still the fastest since last August, with lower staffing levels often tied to cost‑control efforts, such as leaving vacancies from leavers and redundancies unfilled.

As has been the case since 2020, average cost burdens increased for Scots firms once again in January, with respondents noting higher supplier, labour and raw material costs, adding up to a noticeable increase in operating expenses. 

Efforts to pass on these higher costs to clients where possible meant that selling prices across Scotland rose again, though of the twelve monitored UK regions and nations, Scotland and London recorded the joint-softest rates of output price inflation. 

Despite those persistent challenges, the survey found cautious optimism among Scotland’s private sector companies, even with a fall in new orders for the sixteenth month in a row, as respondents continue to charge ahead with plans for product releases and expansion into new markets over the next twelve months.

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“Our data show that Scotland’s business community continued to face challenges at the start of 2026, with demand falling and inflationary pressures remaining stubborn,” said Judith Cruickshank, Scotland Board Chair, Royal Bank of Scotland.

“Business activity has stabilised, and we once again saw growth in services. However, we are not yet back to growth, manufacturing continues to contract, and our overall performance was not as strong as many other nations and regions.

“Despite this, our Growth Tracker found that Scottish businesses continued to show hope of conditions improving over the next twelve months.”