Bank of Scotland

Bank of Scotland PMI: Growth in Private Sector economy eases

13 January 2014

  • Weakest rise in business activity since May
  • Jobs growth eases to modest pace
  • Input price inflation ticks up to nine-month high

December’s Bank of Scotland PMI report showed a further easing of the upturn in the private sector economy north of the border.The latest increase in business activity was the weakest since May, although still solid in the context of historical survey data. The pace of job creation also eased amid slower growth in incoming new work. December’s survey meanwhile showed stronger inflationary pressures.

Business activity in Scotland’s combined manufacturing and service sectors rose for the fifteenth straight month in December. Although still solid, growth was notably weaker than the heights reached during the summer, having slowed for the third month in row. The headline Bank of Scotland PMI registered at a seven-month low of 54.5, down from November’s reading of 55.2. Moreover, this signalled a notably slower pace of expansion than observed across the UK as whole.

The level of new work received by private sector companies operating in Scotland continued to rise during the final month of the year, but the rate of growth eased again to the slowest since May. Weighing on overall inflows of new business was a solid and accelerated decrease in new export orders at manufacturers, the sharpest since October 2012. Some firms attributed the drop to a strengthening of the pound against the currencies of key client markets. Net job creation eased to only a modest pace in December, and one that was the slowest for eight months. Nevertheless, employment has now risen for 13 months in a row – the longest sequence for over five-and-a-half years – and manufacturers and services firms alike recorded higher staffing levels.

Outstanding business accumulated during the month, and at a slightly faster pace than in November, boding well for the prospect of further job creation in coming months. Anecdotal evidence suggested that backlogs increased in part as a consequence of growth in new work outpacing that of output.

December data showed a strengthening of inflationary pressures in Scotland, with both input and output prices rising faster than one month before. Transport costs and utility bills were identified by respondents as key drivers of input price inflation, the rate of which remained faster than the UK average and well in excess of growth in output charges.

Donald MacRae, Chief Economist at Bank of Scotland, said: “December’s PMI showed the private sector of the Scottish economy continuing to grow although at a reduced rate compared to summer. Both service and manufacturing sectors recorded a rise in new work and continued to increase employment in the month. New manufacturing export orders showed a disappointing fall perhaps due to a strong pound. The overall PMI at 54.5 remains high suggesting the recovery in the Scottish economy continued at the end of last year and looks set to persist throughout 2014.”

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