As we all rush to plan Christmas parties, invitations to Christmas drinks and Christmas presents, our Analysts have reviewed the state of our Scotland-based SMEs.
How are they doing? Spoiler Alert: We will not focus on Tech and Green Tech. We will look at the non-Tech world because it is what we know best.
How did we do? We showed resilience but mixed performance.
The services economy — especially business & professional services, hospitality & accommodation, and creative industries — provided most of the growth and employment momentum, while manufacturing (production) and parts of construction faced ongoing headwinds from higher input costs, global trade frictions and uneven demand.
Export and inward investment remained an important tailwind for scaling non-tech firms. Key indicators show a broadly positive base to work. At the same time, however, cost pressures, especially labour and input costs, squeezed margins — meaning many SMEs remain vulnerable.
Macro-economic data (GDP, sector trends) suggest a mixed backdrop. Still, the tailwinds from tourism, international demand for food & drink, and external investment offer a solid base for 2026 — if businesses plan carefully.
Important Caveat on Data Limitations
It is essential to note that comprehensive, real-time data on small, independent, or micro businesses—particularly within the hospitality and creative sectors—remains highly fragmented.
Despite our thorough efforts to utilise all available data sources, our analysis and forecasts are necessarily based on aggregated metrics. Therefore, we must clarify that while our findings provide a robust overview of the market, they may not capture the granular nuances and specific challenges faced by this extensive and growing niche of smaller enterprises.
Macro context & overall economy
- According to the latest quarterly national accounts, in Q1 2025, Scotland’s on-shore GDP grew by 0.4%. In that quarter, the services sector grew by 0.5%, while the production (manufacturing) sector fell by 0.1%.
- In June 2025, another official estimate showed GDP growth of 0.6% for the month, with positive contributions from Professional, Scientific & Technical Services and Manufacturing sectors.
So even though upstream production/manufacturing remains patchy, the broader services economy — which houses many non-tech SMEs — remains a stabilising force. This environment sets the scene we have talked about in all our “Focus on Scotland” reviews: SMEs in services, hospitality, food & drink, and light manufacturing have a context in which selective growth is possible, but risks remain from cost pressures and uneven demand.
Hospitality & Accommodation: a standout for 2025
The hospitality/hotel sector has been among the strongest performers in 2025 — a crucial anchor for SMEs in accommodation, F&B, local services, and tourism-related supply chains. Key data:
- In August 2025, Scotland’s hotels achieved a hotel occupancy rate of 87.2%, outpacing the rest of the UK (UK ~82.1%) and London (~84.5%). Room rates (ADR) hit a seven-year high: £206.91, up from £191.67 in August 2024.
- Through June 2025, hotel demand remained strong: occupancy rose to 83.8% (from 83.7% in 2024), though gross operating profits slipped — from 46.7% in June 2024 to 44.9% in June 2025 — because of rising costs (especially staff).
- In February 2025, occupancy grew modestly (to 69.1% from 68.0% in Feb 2024). Yet, despite stable room rates (ADR ~£99.10), gross operating profits fell from 17.2% to 14.6%.
- Earlier, in December 2024, occupancy was 68.5% (up from 67.0% in 2023), ADR £129.54 (up from £127.98), though profits dipped slightly (gross margin ~27.4%, down from 30.3%).
Hospitality and accommodation-related SMEs (hotels, B&Bs, guesthouses, restaurants, local suppliers) have benefited from strong tourism and demand, especially in peak months. However, cost pressures — staffing, labour, utilities — are real, and margins are under pressure. Success in 2025 seems tied to strong summer/holiday demand, events (festivals, concerts), and urban tourism (cities).
Thus, for 2025, hospitality stands out as a bright spot — but 2026 will likely require strategic cost-management, pricing discipline, and diversified revenue streams to maintain viability.
Food & Drink and Consumer Goods, and Niche Manufacturing
- Recently (Nov 2025), the national industry body reported that the food and drink sector reached a record £19 billion turnover.
- This sector remains one of the most important among non-tech SMEs: supporting tens of thousands of jobs and hundreds of small and medium producers.
SMEs producing food & drink (including “luxury” or craft items, niche goods, artisanal manufacturing) are benefiting from both domestic demand and export or external demand. The record turnover suggests resilience despite inflation, cost pressures, and global economic headwinds.
However, turnover growth doesn’t automatically translate into profit — small producers still face increased input costs, supply-chain pressures, and competition. Export dependence or premium-orientation can help buffer those risks.
For consumer-goods SMEs: while broad manufacturing remains volatile, those focused on differentiated or high-value products (food, craft goods, niche manufacturing) are better positioned than commodity-based producers.
Business & Professional Services, Creative and Cultural SMEs, and Independent Businesses
The broader services economy — especially professional, scientific and technical services (consulting, accounting, legal, B2B services) appears robust in 2025:
In Q1 2025, professional, scientific and technical services recorded growth of +2.6%. Wholesale, retail & motor trades also grew. This suggests demand remains for advisory, compliance, consulting, and support services, which benefits SMEs in those segments.
For creative industries, small businesses, craft producers and independent operators (arts, culture, small-batch manufacturing, niche producers), the picture is more mixed. There are no national-level datasets for ‘creative SMEs turnover or growth 2025’, but given general economic pressures (inflation, wage costs), the performance is likely uneven, with the strongest resilience among those who are export-oriented, premium, or niche-market focused.
Internationalisation and Export Momentum
Across Scotland’s SME landscape in 2025, the strongest international gains emerged outside the technology and renewable-energy space.
The country’s Food and Drink sector continued to anchor Scotland’s global economic identity, reaching a record turnover of £19 billion. Although part of this growth was influenced by price inflation, the sector’s real achievement came from its expanding international footprint.
Throughout 2025, industry bodies and government agencies coordinated a series of global trade showcases, targeted promotions, and renewed diplomatic engagement to strengthen Scotland’s visibility abroad. These efforts supported everything from small-scale artisanal producers to major distillers, contributing to a steady rise in export commitments.
This momentum was further boosted by progress on removing priority trade barriers in the EU — especially for food and drink products and for legal services — helping Scottish SMEs improve their access to regulated European markets.
Professional services firms, many of them small and specialist, benefited from greater certainty around cross-border operations. Combined, these efforts helped drive Scotland’s highest-ever value of planned international export sales, totalling £2.4 billion across 2024–25.
Outlook for 2026: A Year of Cautious Rebound
Looking ahead to 2026, the prospects for Scotland’s non-tech SMEs suggest a year of cautious but meaningful recovery. Economic forecasts indicate that GDP growth could edge up to around 1.2%, narrowly outpacing the projected UK average. This optimism rests largely on expectations that inflation will return to the 2% target by mid-year, enabling the first round of interest-rate cuts and providing some much-needed relief to sectors burdened by high borrowing and operational costs.
For hospitality, which has already benefited from strong tourism demand and improving consumer sentiment, 2026 is likely to offer a more stable trading environment. Businesses will, however, need to adapt to the introduction of the visitor levy, as local authorities begin implementing overnight stay charges that could influence pricing strategies and competitiveness — especially in key destinations like Edinburgh, Glasgow, and the Highlands.
Manufacturing SMEs, particularly those in consumer goods and niche luxury production, are expected to respond to last year’s difficulties by increasing their investment in research, development, and product innovation. This shift reflects a broader trend among Scottish businesses seeking to improve productivity and differentiate themselves internationally. Yet challenges persist: demand uncertainty, elevated tax burdens, and acute labour shortages — particularly in construction and hospitality — remain prominent concerns that may limit growth if unaddressed.
Overall, 2026 is poised to be a year defined not by dramatic acceleration but by steady improvement, marked by softer cost pressures, improved consumer confidence, and renewed investment intent across several of Scotland’s most resilient SME sectors.
They also contributed to Scotland maintaining its position as the top UK destination for foreign direct investment outside London, reinforcing the reputation of Scottish SMEs as globally ambitious despite domestic economic pressures.
