Activity returns to marginal growth in April

11 May 2015

April’s PMI survey data indicated a return to growth of business activity, although the expansion was centred on the service sector as manufacturing registered a modest contraction. 

The seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – improved to 50.7 during April, from March’s 49.4. Although indicative of marginal growth, the latest PMI reading was the best recorded by the survey in the year-to-date.

A reversal of recent sector trends was signalled by April’s survey, with services activity returning to modest growth in line with a gain in new business. Companies reportedly benefited from increased marketing and a modest strengthening of market confidence compared to March.

In contrast, manufacturers registered a fall in output for the second time of 2015 so far. This was largely reflective of another decline in new orders. Lower foreign demand was mentioned as a factor pushing total new work lower. There were reports that a weak euro had undermined demand from clients based in the eurozone.

On the jobs front, a third successive month of employment growth was recorded during April. Some companies reported gearing up for expected business expansion over the coming months. Service sector companies were the primary source of higher employment as manufacturing payroll numbers declined slightly.

April’s survey data indicated that average input prices continued to rise, but at a slower rate as manufacturers benefited from a strong pound making imported costs cheaper. In contrast, service providers noted that upward salary pressures had driven up their operating expenses.

Finally, competitive pressures and discounts to clients negatively impacted by unfavourable exchanges rates led to a fourth successive monthly decline in output charges.

Donald MacRae, Chief Economist at Bank of Scotland, said: “April's PMI signalled a return to growth in the Scottish economy. However, the expansion was marginal and confined to the services sector with manufacturing exporters suffering from the effects of low growth in the Eurozone. The slowdown of the first three months of this year is slowly being reversed with both employment and new business increasing in April suggesting a return to a more normal growth rate in the second quarter.”