Bank of Scotland

Scottish private sector activity rises slightly at start of Q4

12 November 2012

  • Weak growth reflects upturn in service sector
  • New orders and employment unchanged over the month
  • Cost pressures remain elevated

Overall business conditions across the Scottish private sector economy changed very little at the start of the fourth quarter, according to the latest Bank of Scotland PMI report. Employment was virtually unchanged, though there was modest growth in activity as a result of progress on backlogs. Meanwhile, inflationary pressures were strong, but largely absorbed by firms that continued to compete for new work.

The Bank of Scotland PMI rose from September’s reading of 49.6 to 50.7 in October, signalling a return to weak growth in private sector activity north of the border at the start of the fourth quarter. The slight expansion reflected higher activity at services providers as manufacturing output continued to decline, albeit at a much slower pace than one month before. Meanwhile, there was a slight decrease in combined manufacturing and services output across the UK private sector economy as a whole.

Data showed that growth of output in Scotland was largely supported through work on outstanding business, as the volume of new work received was broadly unchanged in October following three straight months of decline. Manufacturers meanwhile recorded a further substantial decrease in new export orders, citing reduced demand in European markets in particular.

Employment within Scotland’s private sector economy remained virtually unchanged for a second month running. Stagnation masked diverging trends at the sector levels, however, with further (albeit marginal) recruitment at service providers contrasting with more job losses in manufacturing.

Overall backlogs of work decreased for the fourteenth month running during October, though the rate decline slowed in part due to a slight build-up of outstanding business at firms in the service sector – the first since February.

Cost pressures facing businesses in Scotland remained strong during the latest survey period, with average input prices rising at a rate that was only slightly weaker than September’s eight-month high. Items reported as up in price by surveyed businesses included most notably energy, fuel and food.

Competition and subdued demand meanwhile dampened firms’ pricing power, with charges rising on average at the weakest rate in the current three-month sequence.

Donald MacRae, Chief Economist at Bank of Scotland, said: "October’s PMI showed a welcome return to weak growth in the private sector of the Scottish economy driven by a rise in services activity. Manufacturing output fell in the month but at a much slower pace than in September indicating a recovery from the dip in output felt from July to September. The deterioration in the Scottish economy identified in the summer months has been arrested but there are few signs yet of a sustained recovery.”

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