Bank of Scotland

Growth eases as new orders rise at slowest rate in 20 months

08 December 2014

Business activity in Scotland’s private sector economy rose at one of the slowest in rates seen over the past two years in November, with growth weighed on by a weaker increase in incoming new work at companies. That was according to the latest Bank of Scotland PMI report, which also showed cost pressures facing businesses ease to a post-financial crisis low. One area which maintained a degree of relative strength was job creation, with employment rising at a solid and accelerated rate.

November saw the seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – ease to 52.8, from October’s 54.2. That was the second-lowest mark in the past 20 months, with only September (51.5) seeing a lower reading over that period. In November, manufacturing output again increased only modestly, while growth in business activity at services firms was notably weaker than one month earlier.

Leading growth of business activity to slow was a weaker increase in new work placed at companies. November’s rise in new business was the least marked since March 2013 and only modest. The primary area of weakness was manufacturing where new orders fell for the third month in a row, partly reflective of a further loss of new export business.

Backlogs of work were further eroded as a result of only modest gains in new business, meaning the level of outstanding business has now fallen in seven consecutive months. Furthermore, November’s decrease in backlogs was the sharpest in almost two years.

Employment at Scottish businesses meanwhile increased during the month, in line with the trend since December 2012. The rate of job creation reaccelerated from October’s ten-month low, to the fastest since August.

Cost inflation at businesses in Scotland eased to an historically low rate in November, with average input prices rising at the slowest pace since August 2009. Of the two monitored sectors, services recorded the stronger cost pressures, often linked to higher labour costs.

Average output charges meanwhile rose modestly on the month, with some firms able to pass on higher costs to clients. The rate of inflation was slightly faster than in October.

Donald MacRae, Chief Economist at Bank of Scotland, said: “November’s PMI fell to 52.8 indicating the Scottish economy continued to grow but a reduced rate compared to the summer months. Manufacturing sector output grew despite a fall in new order inflows while new export orders fell for the fifth successive month illustrating the challenge of increasing exports to a stagnating Eurozone economy. All sectors employed more people in a welcome sign of continuing high levels of business confidence. The recovery continues but the pace has eased slightly.”

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