Despite the monthly contraction, the broader picture shows growth of 0.5% for the three-month period ending in July when compared to the previous quarter.

The July downturn was driven by a significant 2.3% contraction in the production sector. This decline offset minor growth in other areas, with the services sector expanding by 0.1% and the construction sector growing by 0.2%.

Analysing the figures, Kevin Brown, savings expert at Scottish Friendly, described the economy’s performance as a “welcome surprise” over the three-month period, noting that Scotland had outpaced the rest of the UK. However, he cautioned against getting “carried away”, highlighting that the July contraction shows the economy continues to face significant headwinds.

“Persistent inflation and higher-than-expected interest rates have sapped household and business confidence,” Mr Brown commented. He also pointed to pressure on exporters from US tariffs and a strong pound, which have made key products like whisky and salmon more expensive for American consumers.

Mr added: “However, there are bright spots, too. The Scottish labour market looks to be comparatively resilient, with unemployment of just 3.5% compared to 4.7% for the UK as a whole.

“And while US tariffs are hitting exporters, the taxes levied on Scottish exports are lower than they are for other countries, giving domestic firms a comparative advantage.”

He concluded: “Overall, while the figures for the three months to July are encouraging, the backdrop remains challenging. And with the Autumn Budget approaching, many households and businesses will be hoping the UK Chancellor introduces growth-boosting measures that enhance the competitiveness of Scottish businesses, while maintaining measures that encourage households to save and invest for their family’s future.”