Bank of Scotland

Growth of private sector hits six-month high in July

11 August 2014

The recovery in Scotland’s private sector economy continued into the second half of the year, July’s Bank of Scotland PMI report showed. Business activity rose at the fastest rate in six months, helping to sustain solid employment growth across both the manufacturing and service sectors. A robust increase in overall new business was meanwhile recorded, despite persistent weakness in manufacturers’ export sales. Elsewhere, price indicators showed slower rates of both input and output price inflation.

Scottish private sector output increased at a sharp and accelerated rate in July, as highlighted by the headline seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – posting at a six-month high of 56.8, up for the second straight month from 55.9 in June and 54.0 in May. This was the first time in more than a year that the headline index registered back-to-back increases.

Supporting this latest rise in business activity was another strong increase in incoming new work. Although weaker than in June, the rate of growth in total new business remained much faster than the historical series trend. In contrast, export orders at manufacturers decreased for the fifth time in the past six months amid a strong pound.   

Scotland’s labour market continued to benefit from the upturn in economic activity, with jobs growth recorded at manufacturers and services firms alike. The overall rise in employment was slightly less marked than in June, however, and also slower than that seen across the UK as a whole.

Staffing capacity was such that businesses were generally able to keep atop of workloads during July, with data showing broadly no change in the level of outstanding business north of the border.  

Output prices rose moderately in July, with the rate of inflation having cooled slightly from the month before. That said, output price inflation in Scotland remained faster than at the UK level. 

The rate of increase in input prices at Scottish private sector firms also eased in July, and was below the long-run series average. One key source of inflationary pressure on the cost side was salary increments, according to panel member reports, with a number of firms highlighting the need to improve pay in order to retain staff.

Donald MacRae, Chief Economist at Bank of Scotland, said: “July’s PMI reached a six month high of 56.8 indicating robust growth in the private sector. Employment and new business both expanded in the month across manufacturing and services but the level of manufacturing new export orders fell, illustrating the challenges for exporters from a strong pound and weak growth in the Eurozone economies.  The recovery continues with the Scottish economy entering the second half of the year in growth mode.

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