Bank of Scotland

Scottish private sector economy stagnates during March

10 April 2017

  • Downturn in services activity offsets manufacturing production growth
  • New orders up only marginally as economic uncertainty weighs on activity
  • Fractional rise in employment signalled

March’s Bank of Scotland Regional Purchasing Managers’ Index (PMI®) showed Scotland’s private sector economy broadly stagnating during March, with activity rising only marginally since the previous month and new business continuing to show only minimal growth.

Although companies retained a degree of optimism regarding future activity, continuing levels of spare capacity meant that employment levels were barely changed.

The seasonally adjusted headline Bank of Scotland PMI

® slipped to a reading of 50.1 in March. That was down from February’s 19 month high of 51.7. Whereas manufacturing output continued to rise considerably, this was broadly offset by a modest reduction in service sector activity.

March data signalled continued steep inflation of input prices, albeit the lowest in six months. Firms, particularly those in the manufacturing sector, commonly reported that unfavourable exchange rates had led to an increase in input costs. Higher wages were also reported to have pushed up operating expenses.

Firms continued to respond to higher operating costs by increasing their own charges. Although the degree of inflation was the lowest of the year so far, it remained notable.

Fraser Sime, Regional Director, Bank of Scotland Commercial Banking said:

"The economic upturn of Scotland’s private sector economy lost momentum at the end of the first quarter. A muted demand for goods and services resulted in only a marginal increase in new business inflows, which in turn caused activity levels to broadly stagnate.

"The overall message is more balanced, however, as businesses created jobs over the month and sentiment remained broadly positive. These developments suggest that the Scottish economy will likely return to growth as we head into the second quarter.

"Looking at the detailed sector numbers, we can see that Manufacturers performed better than their Services counterparts, with factory production still rising at a pronounced rate, but Services activity dipped for the first time in four months."

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