Bank of Scotland

PMI dips in April, but still points to solid private sector growth

12 May 2014

Scotland’s private sector economy continued to grow in April, the latest Bank of Scotland PMI report showed, with output and employment both rising on the month. The pace of expansion in output was the slowest in 2014 so far, but faster increases in new business and backlogs of work nevertheless pointed to the upturn being sustained. April’s survey meanwhile showed slightly faster rises in both input costs and average output prices.

April saw the seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – fall from March’s 56.4 to 54.8, its lowest reading in the year-to-date. That said, having trended at a relatively high level by the historical standards of the survey throughout the opening quarter, the latest reading was still consistent with a solid rate of expansion overall. Both manufacturers and services firms recorded notable rises in output, though in each case growth was slower than during March.

In contrast to a slight slowdown in output growth, the level of new business placed with private sector firms operating in Scotland rose at a faster rate in April – the most marked since January. Data showed that the domestic market was the key driver of the upturn, with new export orders at manufacturers having fallen marginally for the third consecutive month.  

Labour market conditions also improved during April, with private sector companies adding to their payroll numbers for the seventeenth straight month. The rate of staff hiring was slowest since January, but solid nonetheless. 

The surge in new business in April, coupled with slower employment growth, contributed a further accumulation of outstanding work. Moreover, the degree to which backlogs of work increased was the most marked in seven months. 

On the costs front, April data showed an uptick in input price inflation faced by businesses operating in Scotland from March’s 54-month low. Service providers noted the sharper acceleration in costs, citing higher average outlays for staff and foodstuffs. That said, the overall rate of input price inflation remained below the long-run series average.

Average output prices in the Scottish private sector economy also increased at a faster rate in April, and more markedly than across the UK as a whole.

Donald MacRae, Chief Economist at Bank of Scotland, said: April’s PMI was a solid 54.8 indicating continuing growth in the Scottish economy in the month.  The recovery is broad based with output growing in both services and manufacturing sectors, accompanied by rising employment and a growing level of new business.  A strong pound may be contributing to new export orders falling marginally for the third consecutive month."

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