Bank of Scotland

Growth of private sector activity slows at end of Q1

15 April 2013

  • March sees slowest expansion in output for four months
  • Growth of new business weakens, but rate of job creation at eight-month high
  • Input cost inflation fastest since December 2011

Latest PMI data from the Bank of Scotland showed that growth of private sector activity north of the border slowed at the end of the first quarter. The level of new business also rose at a moderated pace, though job creation strengthened and was the most marked in eight months. Input price inflation was meanwhile sharp – amid rising fuel costs and weakness in sterling – though firms generally absorbed these higher cost pressures as charges were virtually unchanged.

Scotland's private sector economy expanded only modestly in March, and at a slower rate than in each of the previous three months. This was signalled by the headline Bank of Scotland PMI posting at 51.1, down from 52.5 in February. Growth was underpinned by a further (albeit slower) increase in service sector business activity, with factory output down marginally on the month.

March saw the volume of new work at Scottish businesses increase for the fourth month running, but at the slowest rate in this sequence. Indeed, the latest rise in new business levels was only slight, and slower than the pace of expansion recorded across the UK as a whole. On the export front, Scottish manufacturers recorded no change in the volume of sales to international clients compared with one month earlier.

The rate of job creation in Scotland's private sector economy picked up during March, and was the fastest in eight months. Services firms and manufacturers alike recruited additional staff, with employment rising at equally modest rates across both sectors.

This latest expansion in operating capacity enabled further progress to be made on backlogs of work, which decreased for the second month running and at a slightly quicker pace than in February.

Meanwhile, March data pointed to a further rise in input cost inflation to the fastest since December 2011. The month-on-month increase in cost burdens was marked and, according to anecdotal evidence provided by panellists, reflected both higher fuel prices and a weak pound.

Despite increased cost pressures in the economy, output prices were virtually unchanged on the month as competition restricted businesses' pricing power. That compared with a slight increase in charges one month earlier.

Donald MacRae, Chief Economist at Bank of Scotland, said:
"The PMI for March showed the private sector of the Scottish economy recording a modest expansion. The level of new business rose accompanied by an increase in the number of jobs in both manufacturing and service sectors but export activity was unchanged in the month. Input cost inflation was marked across all sectors. The PMI has now been above the "no-growth" level of 50 for six consecutive months suggesting the Scottish economy is continuing its slow recovery from recession."

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