Scotland’s economy has proved more resilient than might have been expected through a turbulent 2026, but beneath that relatively steady headline picture there are warning signs which will be much harder to ignore.

The latest assessment from the Fraser of Allander Institute finds that the economy continued to hold up during the second quarter of the year, allowing the respected economic research institute to leave its forecasts largely unchanged.

That resilience matters at a time of continuing uncertainty across global markets, but it does not mean Scottish households, workers and businesses are enjoying anything approaching an easy ride.

Inflation has begun edging upwards again, driven largely by increasing housing, energy and transport costs, meaning some of the expenses people have least ability to avoid are once again becoming more expensive.

Perhaps the more troubling story, however, can be found in the labour market.

Payrolled employment has been falling consistently since 2023, according to the Institute, with younger workers and people employed in retail and hospitality bearing much of the impact.

That combination presents Scotland with an uncomfortable economic picture in which the economy can remain relatively resilient on paper while the experience for people trying to find work, keep a job or cover everyday household costs feels considerably less secure.

Conditions remain difficult for many households, while the Institute also notes that increases in some disability benefits have been lower than previously forecast.

Emma Congreve, Deputy Director of the Fraser of Allander Institute, said:

“Scotland’s economy has held up well in the face of continued global uncertainty, but beneath the headline figures there are signs of a labour market under strain, with payrolled employment falling steadily since 2023 and young people bearing much of that impact.

“Against this backdrop, the Scottish Government has set out a five-year Programme for Government, with some big ambitions on public service reform as well as some eye-catching policies.

“The Scottish Budget, due to be announced on 3 December, will be a demanding test of how the Government’s ambitions measure up against the fiscal reality, and where spending will ultimately be prioritised, and in some areas, cut.”

That December Budget therefore arrives against an economic backdrop which is neither the crisis some might fear nor the comfortable recovery households and businesses would welcome.

Scotland has weathered another difficult period better than might have been expected, but falling employment, pressure on young workers and stubborn household costs show why resilience should not be mistaken for prosperity.