Middle East Conflict Could Exacerbate Scotland's Deepening Retail Cost Crisis
Economists have issued stark warnings that the ongoing conflict in the Middle East threatens to intensify the severe "costs crunch" currently gripping Scottish households and businesses. This comes alongside newly released data revealing a "disappointing" February performance for Scotland's retail sector, with total sales showing no growth compared to the same period last year.
Flat Sales and Real-Terms Decline
According to the latest figures compiled by the Scottish Retail Consortium (SRC) and KPMG, total retail sales in Scotland during February were completely flat when measured against February 2025. This follows a 0.4% year-on-year decrease recorded in that previous period. More critically, when adjusted for inflation, this flat performance translates to a real-terms year-on-year decrease of 1.1%.
This stagnation brings a definitive end to a seven-month streak of what analysts had described as "pedestrian but nevertheless positive growth." The February figures also fall significantly below both the three-month average increase of 1.2% and the 12-month average increase of 1.0%.
A Sector of Contrasting Fortunes
The data reveals a sharp divergence between different retail categories. Food sales managed a modest increase of 1.2% during the month. While this was below the three-month average growth of 1.4%, it remained above the 12-month average of just 0.3%.
In stark contrast, non-food sales experienced a pronounced decline of 1.5%. This performance was markedly worse than both the three-month average increase of 1.0% and the 12-month average increase of 1.9%, highlighting particular weakness in discretionary spending.
Industry Leaders Voice Grave Concerns
David Lonsdale, Director of the SRC, commented that the figures confirm the sector's challenges are "far from being in the rear-view mirror," despite a surprisingly strong 3.3% sales increase in January.
"Scottish retail sales slowed to a halt in February," Lonsdale stated. "Worries that January's sparkling showing was an outlier appear to have been confirmed, with flat sales figures correlating directly with a documented fall in shopper footfall."
He noted that Valentine's Day provided a rare bright spot, buoying sales of perfumes, cosmetics, watches, and jewellery as consumers treated loved ones. Food sales also performed relatively well. However, receipts from clothing, footwear, and furniture sales were notably underwhelming.
Lonsdale issued a particularly grave warning regarding geopolitical instability: "The costs crunch affecting households and firms remains real and could be exacerbated by prolonged conflict in the Middle East, which may make for a bumpy few months ahead."
He urged political parties to exercise caution: "It is imperative that the political parties seeking to form the next Scottish government think carefully about the real-world impacts of their proposals and avoid layering even more regulatory and cost burdens onto business. Without a dose of realism and restraint from policymakers, Scotland's retailers will struggle to invest in stores, high streets, and in keeping down prices for shoppers."
Analysts Foresee Continued Challenges
Linda Ellett, UK Head of Consumer, Retail and Leisure at KPMG, echoed the concerns, describing February as a disappointment following January's strength.
"After a strong January came a disappointing February, with no sales growth overall for Scottish retailers," Ellett said. "While some channels, categories, and brands are showing there is still room to thrive, the combination of ongoing business costs and limited consumer spending is challenging others – with efficiency drives and technological transformation continuing at pace."
The combined analysis from industry bodies and economists paints a picture of a fragile retail environment in Scotland, now facing the additional threat of external geopolitical shocks that could further inflate costs and suppress consumer confidence in the coming months.
