Bank of Scotland

March PMI shows strong growth in private sector economy

14 April 2014

Scotland’s private sector economy ended the opening quarter with another strong month of growth, according to the Bank of Scotland PMI report for March. Improving business conditions and confidence supported increases in output and new business, in turn leading companies north of the border to bolster payroll numbers. March data meanwhile highlighted a cooling of inflationary pressures as both input and output prices rose at slower rates.

At 56.4, up slightly from February’s mark of 56.2, the seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – signalled further strong growth of business activity in March. Moreover, the index’s quarterly average improved slightly from the final three months of 2013. Growth was broad-based across manufacturing and services in March, with the former seeing a pick-up from only a modest pace of expansion one month before.

March’s increase in business activity was underpinned by another solid increase in the level of incoming new work, which panel members attributed to generally healthier business conditions and improved confidence. There was also mention of new work inflows being positively influenced by growth in the housing market. New export orders at manufacturers declined for a second straight month, however.

Scotland’s labour market continued to reap the benefits of improving business conditions, with employment rising for the sixteenth straight month. Although the rate of job creation eased from February’s series-record high, it nevertheless remained solid and was the second-fastest since the survey began in January 1998.

Placing added pressure on firms to expand staff capacity was a faster increase in backlogs of work, the most marked in 2014 so far.

March’s survey signalled a notable easing in the rate of cost inflation faced by private sector companies in Scotland, to the slowest since September 2009. Anecdotal evidence highlighted the impact of a dip in fuel prices and strong competition among suppliers.

Similarly, output prices rose at a slower rate in March. This reversed an upward trend in charge inflation which had previously reached a 31-month high in February.

Donald MacRae, Chief Economist at Bank of Scotland, said: “The March PMI signalled further strong growth of business activity across both manufacturing and service sectors. Not only did the level of new orders increase but employment rose for the sixteenth month in a row, while cost pressures eased.  New export orders fell for the second consecutive month illustrating the challenge of improving our trade performance. The Scottish economy has added another month of expansion further embedding the growing recovery.

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