Scottish economy in stronger showing as optimism leaps
Although growth of Scotland's private sector economy in June accelerated from the pace recorded in May, it remained modest. Expansion continued to be driven by the services sector, with manufacturing output falling again.
Scotland was placed sixth in the league table of the 12 UK nations and regions in terms of growth of its private sector economy in June. In May, it was in fifth place.
The headline Royal Bank growth tracker for Scotland - which measures the month-on-month change in combined services and manufacturing output - rose to 50.9 in June from 50.5 in May on a seasonally adjusted basis. A level above 50 represents expansion.
Royal Bank noted the June reading signalled a second consecutive monthly rise in business activity.
It added: 'While the uptick was modest overall, it was the strongest since November 2024.'
Only in Northern Ireland was there a rise in private sector employment last month.
Scotland, with its marginal fall in private sector employment in June, was second of 12 in the UK league table on this measure. It was the only one of the 12 UK nations and regions to record a rise in private sector employment in May in Royal Bank's growth tracker survey.
In Scotland, services firms increased their staffing levels in June amid upturns in new business and activity, the growth tracker report shows. However, this was offset by another month of job-shedding at manufacturers north of the Border.
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Commenting on the rise in confidence in Scotland's private sector in June, Royal Bank said: 'Private sector companies operating in Scotland remained optimistic about the year-ahead outlook for activity in June. The degree of positive sentiment edged up for a third straight month to the highest since October 2024, but was weaker than that recorded for the UK as a whole.
'Confidence across Scotland was supported by plans to introduce new product lines, improved operational performance, and strategic marketing efforts.'
The survey signals improved optimism among manufacturers, in spite of the latest fall in output in this sector.
Royal Bank said of the labour market in June: 'A near-universal fall in headcounts was noted across the 12 monitored UK regions and nations, with Northern Ireland being the sole exception to this trend. Among the remaining areas, Scotland experienced the least pronounced drop in employment and one that was only fractional.'
Judith Cruickshank, who chairs Royal Bank's Scotland board, said: "Scotland's private sector recorded a sustained uptick in activity at the end of the second quarter, with growth predominantly driven by service providers. In contrast, the manufacturing sector faced a challenging demand environment, leading to overall declines in new business and production.
'Despite these sectoral differences, firms exhibited increased optimism about the future, with manufacturers reporting positive growth forecasts for the first time in three months.'
She added: 'In June, private sector firms encountered sharply rising operating costs, but selling price inflation slowed notably. This suggests a willingness among businesses to absorb some costs to bolster sales.
'The employment landscape remained broadly stable compared to the previous month, with sector data continuing to highlight diverging trends between manufacturers and service providers."
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Sebastian Burnside, chief economist at Royal Bank of Scotland parent company NatWest, said of the UK picture: "It was a positive end to the second quarter, with most UK nations and regions back in growth territory. Even where business activity dipped in June, with the rates of decline being only modest and the performances better than seen on average over the first half of the year, those areas are still in what we dub 'recovery' territory.
"The same is true for underlying demand. New business either rose or was on a more stable footing compared to earlier in the year.'
He added: 'The labour market is the main weak spot at the moment, as the combination of wages pressures and underutilised capacity encourages firms to look for productivity gains where possible.
"Encouragingly, cost inflation has come down from the highs seen in the spring, dropping even further in June across most parts of the UK. Businesses in all areas have been able to make smaller and smaller price increases of their own in [the] last couple of months, relieving some of the pressure on demand.'
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