The Q1 2026 Quarterly Economic Survey (QES) delivers a sobering message for the North-east of Scotland. This is not simply an economy treading water—it is one under sustained strain, where deteriorating conditions are beginning to shape behaviour in ways that could have lasting consequences for investment, growth … and the region’s political outlook.
The most striking feature of the findings is the convergence of weak demand and intensifying cost pressure. Domestic sales and orders have, at best, stagnated. For many businesses, activity levels are not just flat—they are fragile. This matters because, without a reliable flow of work, even fundamentally sound businesses are forced into defensive decision-making.
International markets, traditionally a source of strength for the North-east, are offering little relief. Export demand has softened, and forward indicators suggest no imminent rebound. For a region with deep links to global energy and engineering markets, this compounds the challenge. The absence of external demand removes a critical lever for recovery.
Against that backdrop, cost pressures are not easing—they are becoming more entrenched. Wage inflation, input costs, and overheads continue to rise, forcing businesses to consider price increases. But this is not a straightforward solution. In a weak demand environment, pricing power is limited. The result is margin compression and, increasingly, a squeeze on financial resilience.
This is now feeding through into cash flow and, more importantly, into behaviour. Businesses are not just cautious—they are pulling back. Investment in plant, machinery, and equipment is subdued, and in many cases being deferred altogether. Spending on training is similarly constrained. These are not short-term adjustments; they are early indicators of a longer-term slowdown in capacity building and productivity growth.
Workforce trends reinforce this picture. Hiring has fallen to levels not seen since early 2021, with firms reluctant to take on additional cost in an uncertain environment. There is little evidence of expansion, and the direction of travel is clear: consolidation, not growth.
Perhaps the most telling dynamic in the report is the growing disconnect between turnover expectations and profitability. While some businesses still anticipate an increase in activity over the next 12 months, far fewer believe this will translate into improved profits. In other words, growth—if it comes—will be thinner, harder fought, and margin-light. That is not a platform for sustained economic health.
Crucially, the survey highlights how these economic pressures are fundamentally shaping business sentiment towards government policy. There is a resounding message of frustration and disappointment. Respondents do not believe that current policy frameworks—either at Scottish or UK level—have effectively enabled growth in the region over recent years. Concerns around the business rates system are particularly pronounced, with many firms viewing it as outdated and misaligned with current economic realities.
This dissatisfaction is not abstract—it is beginning to inform political perspectives. Businesses are actively questioning which parties are best placed to represent their interests in the forthcoming Scottish parliamentary term. The underlying message is that economic policy, taxation, and support for investment are now central political issues for the business community in the North-east.
Taken together, the findings point to a region at a critical juncture. The issue is not one of cyclical pressure; it is the risk of structural drag. When businesses consistently defer investment, limit hiring, and operate on compressed margins, the cumulative effect is a gradual erosion of economic capacity.
The key takeaway is stark: without intervention—whether through improved market conditions or more supportive policy—the North-east risks entering a prolonged period of underinvestment and muted growth. Resilience remains, but it is being tested. And increasingly, it is accompanied by a loss of confidence—not just in the economic outlook, but in the policy environment shaping it.
For both policymakers and business leaders, the implications are clear. The challenge must be to restore the conditions for meaningful, confident investment. Without that shift, the consequences identified in this report may become entrenched rather than temporary.