Bank of Scotland

Growth of Scottish private sector activity strengthens in December

14 January 2013

  • Fastest rise in output for six months
  • Growth driven by increase in new business wins
  • Slight drop in output prices

Scotland's private sector economy ended 2012 on a sound footing, according to Bank of Scotland's PMI report for December. Output levels increased at the fastest rate since June, boosted by a return to growth in new business. Employment rose over the month, contrasting with a slight decline UK wide. Competitive pressures led businesses north of the border to reduce their output prices, despite there being another substantial increase in average input costs.

The Bank of Scotland PMI read 51.2 in December, its highest mark for six months and indicative of moderate growth in private sector activity. That compared with a reading of 50.3 in November, and showed a better overall performance than for the total UK economy, which saw stagnation in the final month of the year. Behind the expansion in output north of the border was an accelerated rise in activity at service providers, with goods production decreasing further.

The level of new work placed with businesses operating in Scotland increased for the first time in six months in December. Growth was the most marked since April, although still only modest relative to that registered in the first quarter of 2012. New export orders received by manufacturers meanwhile rose slightly, having fallen continuously on a monthly basis since June.

Scotland's labour market benefited from the improved trends in output and new orders in December, with businesses recording the fastest rate of job creation for five months.

December data signalled a solid and accelerated decrease in backlogs of work at private sector companies in Scotland. The latest reduction was the sixteenth in consecutive months, and the sharpest since July.

Operating costs for Scottish businesses continued to rise at a marked rate in December, and one that was faster than in all other UK regions monitored by PMI data bar Northern Ireland. Anecdotal evidence suggested that an increase in energy prices was one key factor adding to cost pressures. That said, the overall rate of inflation was slightly weaker than in each of the previous three months.

There was a contrasting trend in output prices in December, which fell on average for the first time in five months amid increased competition and efforts to generate new business wins.

Donald MacRae, Chief Economist at Bank of Scotland, said:
"The PMI for December showed a welcome rise to its highest level for six months indicating a return to moderate growth in the Scottish economy. The increase in new business and the rise in employment are particularly encouraging. The pickup in new export orders should enable a return to growth in the manufacturing sector in the coming months. These results give hope that the Scottish economy has exited the recent period of slowdown and is entering 2013 in growth mode."

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