Bank of Scotland

Growth of Scottish business activity slows sharply in September

13 October 2014

Scotland’s private sector economy witnessed a slowdown in expansion during September, the latest Bank of Scotland PMI report indicated. Output growth eased from the robust pace seen in August and, similar to that of new business, was at a multi-month low. Nevertheless, job creation remained at a steady, solid rate. The survey’s price indicators meanwhile pointed to a slight rise in average output charges and further solid cost inflation at businesses.

At 51.5, down from 54.6 in August, the seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – pointed to marked easing in the rate of expansion of private sector business activity north of the border in September. The rate of growth as signalled by the index was the slowest in 18 months. Services activity continued to grow but at a much reduced pace, while goods production fell outright during the month.

A subdued trend in new business was one factor behind the slowdown in output growth. After having eased sharply in August, the rate of increase in new work slowed further amid particular weakness in manufacturing orders. New export orders at manufacturers meanwhile fell for the third straight month.

Data showed a degree of resilience in the rate of job creation in Scotland’s private sector economy despite the slower increase in business activity. Although slightly less marked than in August, the pace at which employment rose remained among the fastest seen over the series history, supported by accelerated growth in service sector payroll numbers.

Backlogs of work meanwhile decreased for the fifth straight month in September. Furthermore, the rate of depletion quickened to the fastest since March 2013.  

Average output prices returned to growth after falling fractionally in August. That said, the rate of inflation was only marginal and slower than at the UK level as businesses north of the border continued to comment on strong competitive pressures.

Leading companies to raise their charges (albeit only marginally on average) was a further increase in cost burdens, with input price inflation ticking up since August to the fastest in three months.

Donald MacRae, Chief Economist at Bank of Scotland, said:  “The private sector of the Scottish economy recorded a slowdown in the rate of growth in September with the PMI falling to 51.5 from August’s 54.6, indicating continuing growth but at a reduced rate.  Manufacturers showed a fall in new orders while financial services saw a slowdown in the rate of growth of new business aggravated by the uncertainty created by the referendum.   Despite this slower increase in business activity, employment increased in both the manufacturing and services sectors indicating continuing confidence for the future and the prospect of a rebound in activity in October.”

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