Warning Middle East conflict could worsen Scotland’s ‘costs crunch’

The conflict in the Middle East could worsen the “costs crunch” affecting households and businesses, economists have warned, amid a “disappointing” February for Scottish retailers.

According to figures from the Scottish Retail Consortium (SRC) and KPMG, total sales in Scotland last month were flat compared with February 2025, when they had decreased by 0.4% on the year before.

This is below the three-month and 12-month average increases of 1.2% and 1.0% respectively, and brings to an end a seven-month run of “pedestrian but nevertheless positive growth”.

Adjusted for inflation it is also a year-on-year decrease of 1.1%.

There were differing fortunes for food sales and non-food sales, with the former increasing by 1.2% – below the three-month average increase of 1.4% but above the 12-month average of 0.3%.

Non-food sales meanwhile fell by 1.5%, below the three-month and 12-month averages of 1.0% and 1.9% respectively.

SRC director David Lonsdale said despite a “sparkling showing” for retailers in January – when sales rose 3.3% – the figures show the challenges for Scottish retail are “far from being in the rear-view mirror”.

“Scottish retail sales slowed to a halt in February,” he said.

“Worries that January’s sparkling showing was an outlier appear to have been confirmed with flat sales figures correlating with a fall in shopper footfall.

“Purchases associated with Valentine’s Day were a bright spot, buoyed by sales of perfumes, cosmetics, watches, and jewellery as Scots treated loved ones.

“Food sales also did well during the month. In contrast receipts from sales of clothing, footwear, and furniture underwhelmed.”

He added: “The costs crunch affecting households and firms remain real and could be exacerbated by prolonged conflict in the Middle East, which may make for a bumpy few months ahead.

“As such, 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.”

Linda Ellett, UK head of consumer, retail and leisure at KPMG, said: “After a strong January came a disappointing February, with no sales growth overall for Scottish retailers.

“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.”