Key findings
- Business services sector gains considerable momentum
- Travel, tourism & leisure activity expands again
- Technology, media & telecoms is the most optimistic segment
Business outlook: continued resilience in most Service segments
The Service Sector, covering the Travel, Tourism & Leisure, Technology, Media & Telecoms (TMT), and Business Services sub-sectors, is a vital and increasingly important part of the Scottish economy.
Here we look at the analysis of the sector midway through 2025, as service providers in Scotland continued to show resilience in business activity in June. This maintained the trend signalled by the Royal Bank of Scotland Growth Tracker for much of the first half of 2025.
Robust increases in output levels in June
Output growth was the joint-fastest for seven months, which added to signs that the service economy has regained momentum after a soft patch in the spring. Moreover, business expectations for the year ahead remained upbeat, with optimism improving for the third month running to its highest since October 2024.
June data pointed to robust increases in output levels among businesses in the Travel, tourism and leisure and Business services sub-sectors. Business services was the best-performing and saw an upturn in activity for the first time in eight months. Technology, media and telecoms (TMT) recorded a slight dip in output levels after growth hit a six-month high in May.
Looking at the trends over the first half of 2025, output growth has been led by Technology, media and telecoms and, to a lesser extent, Travel, tourism and leisure. Service providers noted that resilient consumer spending and rising global demand for technology services had supported business activity.
Some firms also commented on the positive impact of unseasonably warm weather on demand for consumer services in May and June. Meanwhile, US tariff uncertainty and fragile domestic economic conditions were cited as factors constraining client demand, especially in the Business services segment.
Employment growth driven by Technology, Media & Telecoms
Employment numbers increased marginally in June, which extended the current period of expansion to four months and contrasted with steeper job losses across the broader UK service sector.
Technology, media & telecoms was again the main driver of job creation, with staff hiring the joint-fastest since July 2024. Travel, tourism and leisure recorded the weakest employment trend in the first half of 2025.
Survey respondents overwhelmingly cited higher payroll costs as the main driver of input price inflation in June and throughout the first half of 2025, particularly the impact of rising National Living Wage rates and National Insurance contributions. Input cost inflation reached a 22-month high in April, with elevated cost pressures seen across all main areas of the service economy monitored.
Travel sector faces sharpest rise in input prices
June data indicated that the Travel, tourism and leisure segment experienced by far the sharpest rise in input prices, which survey respondents linked to strong pay pressures and higher purchasing costs. Business services recorded the weakest pace of input price inflation, with the latest rise in average cost burdens the slowest since December 2024.
On average in the first half of 2025, however, Technology, media and telecoms has seen the weakest cost pressures. At the other end of the scale, Travel, tourism and leisure has posted the fastest rise in input prices on average so far this year.
Prices charged by Scottish service providers increased at the slowest pace for 11 months in June as lower input cost inflation and intense competitive pressures weighed on pricing power. On average in the first half of 2025, the gap between input price and output charge inflation was largest in the Technology, media and telecoms segment. Meanwhile, Travel, tourism and leisure businesses signalled the smallest squeeze on margins so far this year, which was a reversal of the trend seen since the pandemic.
Positive sentiment for business activity in the next 12 months
Looking ahead, around 37% of service providers anticipate a rise in business activity over the next 12 months, while only 9% predict a reduction. The resulting Future Activity Index picked up for the third month running. Moreover, the latest reading was the highest since October 2024 and signalled a strong overall degree of business optimism. Positive sentiment was often attributed to forthcoming investments in new products and marketing initiatives, alongside hopes of a general improvement in sales pipelines. However, service providers cited concerns about the broader UK economic outlook and impact of elevated geopolitical tensions around the world. Some firms also noted headwinds from domestic policy uncertainty, notably in relation to renewable energy investment spending.
Divergent trends by sub-sector have been seen since the start of 2025, which persisted in June. Travel, tourism and leisure businesses were by far the least optimistic, reflecting headwinds from sharply rising costs and subdued consumer confidence.
Technology, media and telecoms was the most upbeat segment, with confidence holding close to April’s series-record high. Anecdotal evidence suggested that this was supported by favourable projections for business and consumer spending on technology services.
The Business services segment also registered upbeat sentiment during the latest survey period. Growth expectations rebounded to the strongest for nearly four years, helped by receding concerns about the impact of US tariffs on client demand.
