Output growth moderates amid softer rise in new orders

14 September 2015

Survey data for August signalled continued improvements in Scotland’s private sector, as output and new orders expanded across both the manufacturing and service sectors. Nevertheless, in all cases rates of expansion eased since July.

Following a reduction seen in the previous month, staffing levels rose in August. The expansion was broad-based by sector. Meanwhile, cost burdens rose at the slowest rate in 16-and-a-half years, while competitiveness led businesses to offer price discounts.

The seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - fell to 50.8 in August, down from 52.2 in July. Despite signalling growth for the fifth successive month, the index eased to the lowest since April.

Sector data signalled slight increases in output across both the manufacturing and service sectors. Domestic demand was sustained, with both sectors reporting growth in new business in August. Survey participants linked the overall rise in new business inflows to investments in marketing campaigns.  However, manufacturers felt the effect of a strong pound as new export orders fell sharply.

Scottish private sector firms reported a return to employment growth in August, although the rise was less substantial than the average for the UK. Where payroll numbers rose, this was linked by survey members to new business growth.

Outstanding business held by companies in Scotland’s private sector continued to decline, and the rate of depletion accelerated in August.

Average input costs rose in August, although the rate of inflation eased to the weakest since February 1999 amid lower fuel prices and a strong pound. Although input prices rose in the service sector, a decrease was signalled by goods producers.

On the other hand, output prices fell in August. Price cuts were broad-based across both the manufacturing and service sectors. There were reports that discounts had been offered as part of efforts to secure more work.  

Donald MacRae, Chief Economist at Bank of Scotland, said: “August’s PMI was 50.8 recording a fall in the month but still signalling growth. Output and employment grew in all sectors but at modest rates. New business grew slowly in both manufacturing and services while new export orders fell for the seventh successive month.  The private sector continues to recover from the slowdown at the start of the year but the Scottish economy will have to rely on the Government sector to raise growth to trend levels in the third quarter of this year.“