Scottish Private Sector Activity Rises Marginally in August

Steven Bobson, Europe & Americas Editor
September 10, 2012 /

The latest Bank of Scotland PMI report showed that Scottish private sector activity increased only marginally in August, and at the weakest rate for 20 months.

The loss of momentum reflected a broad-based and accelerated drop in intakes of new work, and led to weaker job creation. A further negative development was an increase in input cost inflation to the fastest since April, resulting in businesses raising output prices over the month.

In August the Bank of Scotland PMI fell for the second month running to 50.3, from 51.0 in July, and signalled only a marginal increase in total activity across manufacturing and services combined. The rate of growth was the weakest in the current 20-month sequence of expansion, and well below the UK-wide average. The headline number dipped on both a weaker increase in services activity and a slightly more marked contraction in factory production than recorded in July.

New work placed with Scottish businesses decreased for the second month running in August, with both manufacturers and services providers winning less new business than one month previously. Moreover, the overall rate of decline accelerated since July to the fastest since December 2010. Five other UK regions saw reductions in new work, but only Northern Ireland posted a more marked drop than Scotland.

Similar to the trend in output, employment at Scotland’s private sector businesses increased at a marginal rate in August. A further (albeit weaker) rise in staff numbers at service providers was partially cancelled out by job losses at manufacturers, according to sector data.

Reflecting the opposing developments in output and new orders, backlogs of work at Scottish firms fell further during August. The reduction was the twelfth in as many months and only slightly weaker than in July.

Data showed cost pressures in Scotland rising during August, which anecdotal evidence linked to increases in the costs of fuel and a range of raw materials. In fact, input price inflation was the strongest in four months, and above the historical series average.

Trends in output prices reflected higher costs in August, rising on average at the fastest rate since last December. Services charges and factory gate prices both increased over the month, the latter to the greater extent.

Donald MacRae, Chief Economist at Bank of Scotland, said: “The PMI for August showed the private sector of the Scottish economy growing for the twentieth month in a row. However, manufacturing output fell and new domestic and export orders were shown by data to have decreased, although employment continued to grow in the service sector. The Scottish economy is struggling to maintain growth momentum in this latest slowdown.”

Activity across Scotland’s manufacturing and service sectors combined increased only marginally in August. The overall rate of expansion was slower than during the preceding survey period, and also the weakest in the current 20-month sequence of growth. Moreover, the UK as a whole saw a comparatively stronger expansion than north of the border. Trends at the sector in Scotland level contrasted starkly over the month, with a solid and slightly accelerated decrease in goods production partly offsetting further (albeit weaker) growth in services activity.

August data pointed to a second successive monthly decrease in new orders received by private sector companies in Scotland. Furthermore, the rate of decline was the steepest since December 2010 and solid overall. Anecdotal evidence often linked lower demand – including in key export markets – to economic uncertainty. There were reductions in intakes of new work at both manufacturers and service providers, with the former recording the steeper decline. The UK as a whole meanwhile saw a moderate rise in new business inflows, following stagnation in July.

Outstanding business at private sector companies north of the border decreased again during August, extending the ongoing sequence of decline to a year. The reduction was solid, albeit slightly slower than both the rate recorded one month previously and for the UK as a whole in August. The latest decrease in work-in-hand (but not yet completed) was again broad based by sector in Scotland. While service providers recorded only a marginal decline, backlogs were depleted at a sharp and accelerated by their manufacturing counterparts.

August saw cost pressures on businesses in Scotland increase. Input price inflation accelerated for the second month running to the fastest since April. Where a rise in costs was recorded, this was often linked by survey respondents to increases in the prices of fuel and a range of raw materials. Input price inflation accelerated in both the manufacturing and service sectors, with firms operating in the latter recording the stronger inflationary pressures overall. There was also a rise in average costs at the UK level, though to a lesser extent than in Scotland.

Output prices in Scotland rose at the fastest rate for eight months during August. The increase was broadly in line with the average recorded over the series history, and followed stagnation in selling prices during the previous month. Factory gate prices rose at a solid rate that was the fastest since January, while services charges increased modestly. Increased selling prices in each sector were often a result of higher costs, according to reports from panel members. Across the UK as a whole output prices rose marginally, having fallen in the previous three months.

Job creation across the Scottish private sector economy slowed to only a marginal pace in August. The latest increase in employment was weaker than those recorded in June and July, and also down on the rate of growth registered at the UK level. Behind the slowdown north of the border were both a reduced rate of job creation at service providers and a drop in manufacturing payroll numbers – the sharpest in the sector for over three years. Employment levels in Scotland have now, however, risen in nine of the past ten months, having stagnated in May.

The Bank of Scotland PMI is compiled by Markit for Bank of Scotland and is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies. The panel has been carefully selected to accurately replicate the true structure of the Scottish economy.

 

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