Employment at Scottish private sector companies rose again in July, after rising slightly for the first time in three months in June, according to the latest Royal Bank of Scotland Growth Tracker report.

Furthermore, the pace of job creation increased to its fastest since September 2024.

“Sector data indicated that the upturn was driven by service providers, as a marked decline in payrolls was seen among goods producers,” said the report.

“Services firms often linked staff hiring to expectations of new projects.”

However, the report said business activity across Scotland declined again in July, as demand conditions remained challenging.

“There were some positive developments, however, with inflationary pressures easing, payrolls rising and confidence around the year ahead improving,” said the report.

The headline Royal Bank of Scotland Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of Scotland’s manufacturing and service sectors – slipped from 47.6 in June to 47.3 in July.

This signalled a further decline in Scottish private sector activity, extending the current run of contraction to four months. Companies reporting lower activity linked this to weaker economic conditions, geopolitical uncertainty and a lack of new orders.

Judith Cruickshank, Scotland Board Chair, Royal Bank of Scotland, said: “Scottish firms signalled a mixed start to the second half of the year according to our Royal Bank Growth Tracker data. Activity continued to decline, reflecting subdued demand and a sharp fall in new orders.

“However, business optimism continued to strengthen from April’s recent low. At the same time, firms expanded payrolls, with employment rising at the fastest rate for nearly two years. Inflationary pressures also eased, reducing potential headwinds to demand.

“Overall, while Scotland lagged behind the wider UK picture in terms of falling business activity and lower confidence, it stood out for the resilience of its labour market. As we continue into the second half of 2026, we may see this increased hiring translate into increasing business activity if inflation continues to fall.”