Falling demand has become the most commonly cited main concern among Scottish businesses for September 2026, narrowly ahead of energy prices. At the same time, the share of firms reporting rising turnover has fallen sharply from the previous month and from a year earlier. The figures suggest that part of Scotland’s business problem may be shifting from the cost of producing goods and services towards the difficulty of selling enough of them.
For much of the recent inflationary period, the central problem facing Scottish businesses was relatively easy to describe. Energy became more expensive. Fuel became more expensive. Wages rose. Materials and imported goods cost more. Companies attempted to absorb those increases, raise prices or reduce other expenditure.
The latest Scottish business data show another pressure moving to the front.
In the Scottish Government’s Business Insights and Conditions Survey for the period 3 to 16 August, businesses with at least 10 employees were asked to identify their main concern for September. Falling demand was cited by 14.9 per cent. Energy prices followed at 14.6 per cent. A further 13.4 per cent reported no concerns.
The percentages are close, but the pattern is not new to September. In the previous survey, falling demand had already been the leading concern for August, cited by 17.4 per cent of firms, ahead of worker shortages at 11.9 per cent. In June, when businesses were asked about July, falling demand was again the most commonly identified concern, at 13.4 per cent.
The result is a sequence rather than a single unusual survey response. Scottish businesses have been identifying insufficient demand as their principal concern for three consecutive monthly outlook periods.
Turnover is weakening at the same time
The turnover figures move in the same direction. In July, 23.6 per cent of Scottish businesses reported that turnover had increased compared with the previous month. In June, the equivalent figure had been 32.2 per cent. In July 2025, it had been 30.6 per cent.
Another 42.3 per cent reported that turnover was unchanged in July, while 25 per cent said it had fallen. The figures cover currently trading businesses with at least 10 employees and a presence in Scotland.
Those figures do not establish that Scotland is entering a recession or that demand is collapsing across the whole economy. They do show that fewer businesses are reporting month-on-month growth in turnover, while concern about demand has moved repeatedly to the top of the survey.
That combination is different from a business environment in which companies are mainly struggling to contain input costs while customers continue buying at the same rate.
Energy and fuel remain major pressures
Cost pressures have not disappeared.
An estimated 76.4 per cent of Scottish businesses said they were very or somewhat concerned about energy prices. In accommodation and food services, the share rose to 81.7 per cent. In transport and storage, it was 79.7 per cent.
Fuel prices generated similarly widespread concern. Across Scottish businesses, 73.5 per cent reported being very or somewhat concerned about rising fuel prices. The figure reached 86.8 per cent in construction and 90.7 per cent in transport and storage.
The two pressures can coexist. A business can face higher operating costs while also finding it harder to increase sales. That position is more difficult to manage than cost inflation alone because raising prices can itself weaken demand.
Only a minority expect to raise prices
The latest survey also provides evidence on how businesses are responding.
In July, 26.3 per cent of firms reported that the prices of goods or services they bought had increased compared with June. Only 11.2 per cent said they had increased the prices of the goods or services they sold.
For September, 11.8 per cent expected to raise their own selling prices. Among businesses considering price increases, labour costs were the most commonly cited factor at 30.1 per cent, followed by energy prices at 27.1 per cent.
That leaves a large group of firms facing higher costs without necessarily passing all of those increases directly to customers.
For a business with strong demand, that can sometimes be managed through pricing power. For a business already worried about customer demand, the calculation is different. An increase intended to protect margins can reduce sales further.
The problem is different across sectors
Scotland’s economy is not one market. A manufacturer exporting specialist equipment faces different demand conditions from a restaurant, retailer, construction contractor or logistics company.
The survey data already show that energy and fuel pressures are concentrated unevenly. Accommodation and food services remain particularly exposed to energy costs, while transport and storage is highly sensitive to fuel. Construction carries its own combination of materials, labour and fuel exposure.
Demand weakness can also arrive through different routes. Household-facing businesses depend heavily on disposable income. Construction depends on investment and financing conditions. Exporters depend on foreign demand and exchange rates. Business-to-business firms depend partly on whether their customers are expanding or delaying expenditure.
A national figure for falling demand therefore conceals several different economic problems.
Scotland has moved through several different business shocks since 2020
The present position follows a sequence of disruptions rather than a single event.
The pandemic interrupted trading and supply chains. Reopening produced shortages and rapid shifts in consumer demand. Russia’s invasion of Ukraine contributed to a sharp rise in European energy costs. Inflation spread through food, transport, labour and materials. Interest rates then rose as the Bank of England attempted to control inflation.
By 2026, the inflation problem has moderated from its peak, but financing conditions remain tighter than before the pandemic and businesses are still operating with higher absolute costs.
Energy prices have also returned as a major concern. The latest Bank of England survey shows UK businesses still expecting selling prices to rise by around 3.8 per cent over the coming year, while wage growth expectations remain around 3.4 per cent.
At the same time, economists surveyed by Reuters expect the Bank of England to keep Bank Rate at 3.75 per cent through the remainder of 2026 and at least into the middle of 2027, with higher energy prices limiting the scope for early reductions.
For Scottish businesses carrying debt, financing investment or relying on discretionary consumer spending, that leaves little prospect of a rapid return to the conditions that existed before the inflationary cycle.
Demand can weaken before employment does
One reason the business survey is useful is that it captures expectations before some effects appear in headline economic statistics.
A company that expects weaker demand does not immediately close or dismiss workers. It can first reduce overtime, delay recruitment, postpone investment, cut stock orders or defer expansion. Those decisions can accumulate before appearing clearly in employment or GDP figures.
The Scottish survey still shows more optimism than pessimism about the next year. In August, 27.7 per cent of firms expected their overall business performance to increase over the next 12 months, while 9.8 per cent expected it to decrease.
The business environment is therefore not one of uniform contraction. Most companies are not reporting expectations of decline.
The change lies elsewhere: fewer businesses are reporting rising turnover, and insufficient demand has repeatedly become the most common single concern.
Small changes in demand can have wider effects
Businesses respond to demand through purchasing as well as selling.
A restaurant serving fewer customers buys less food and drink. A construction company with fewer projects orders fewer materials. A manufacturer receiving fewer orders uses less freight and may delay equipment purchases. A retailer expecting weak sales reduces stock.
One company’s reduction in expenditure therefore becomes another company’s reduction in demand.
This is one of the ways a slowdown can spread through an economy without any individual business initially experiencing a dramatic event.
The same mechanism works in reverse during expansion. Rising orders lead companies to buy more stock, employ more people, invest in equipment and commission services from other firms.
Scotland’s business base has limited protection from weak domestic demand
Exports can provide one route around a weak domestic market, and Scotland has internationally competitive sectors including food and drink, energy, engineering, financial services, life sciences and technology.
But much of the Scottish business population serves customers within Scotland or the wider UK. Retail, hospitality, construction, personal services and large parts of professional and business services depend substantially on domestic spending and investment.
Where household budgets remain constrained, the effect can therefore travel directly into company turnover.
That is particularly relevant after several years in which higher housing, food, energy and borrowing costs have absorbed a larger share of household income.
A cost problem and a demand problem require different responses
When input costs rise while demand remains strong, companies can sometimes protect themselves through price increases, efficiency savings or longer-term contracts.
When demand weakens, reducing costs does not itself create more customers.
Businesses can attempt to find new markets, export, develop new products, reduce prices or increase marketing. Governments can influence demand indirectly through public spending, investment, taxation and the broader conditions affecting household income and business confidence.
None of those responses is immediate.
The Scottish survey is therefore showing an economy in which businesses remain highly concerned about energy and fuel costs while simultaneously reporting a different constraint on growth: not enough demand for what they sell.
That combination is visible most clearly in the turnover data. In June, almost one business in three reported higher turnover than in the previous month. By July, the figure had fallen to fewer than one in four.
The next Scottish BICS release is scheduled for 10 September and will extend the series by another survey wave.
That will show whether the pattern is beginning to reverse or whether falling demand is becoming a more persistent feature of the Scottish business economy.
Sources
Business Insights and Conditions in Scotland — Wave 162
Scottish Government — 27 August 2026
https://www.gov.scot/publications/bics-weighted-scotland-estimates-data-to-wave-162/
Business Concerns — Business Insights and Conditions in Scotland, Wave 162
Scottish Government — 27 August 2026
https://www.gov.scot/publications/bics-weighted-scotland-estimates-data-to-wave-162/pages/business-concerns/
Turnover — Business Insights and Conditions in Scotland, Wave 162
Scottish Government — 27 August 2026
https://www.gov.scot/publications/bics-weighted-scotland-estimates-data-to-wave-162/pages/turnover/
Business Insights and Conditions in Scotland — Wave 160
Scottish Government — 30 July 2026
https://www.gov.scot/publications/bics-weighted-scotland-estimates-data-to-wave-160/
Business Insights and Conditions in Scotland — Wave 158
Scottish Government — 25 June 2026
https://www.gov.scot/publications/bics-weighted-scotland-estimates-data-to-wave-158/
UK Firms Plan Slightly Smaller Price Rises, BoE Survey Shows
Reuters — 4 September 2026
https://www.reuters.com/world/uk/uk-firms-plan-slightly-smaller-price-rises-boe-survey-shows-2026-09-04/
Bank of England to Hold Rates, Show Patience With War-Driven Inflation: Reuters Poll
Reuters — 8 September 2026
https://www.reuters.com/world/uk/bank-england-hold-rates-show-patience-with-war-driven-inflation-2026-09-08/
