Scottish private sector activity expanded solidly in August, as manufacturing production increased at the sharpest pace for four months according to the latest Bank of Scotland PMI. However, the overall rate of growth slowed somewhat since July due to the weakest monthly rise in service sector activity since January.
Despite both higher activity and the steepest rise in demand for four months, employment fell for the first time in seven months. Meanwhile, output prices increased only moderately as Scottish firms absorbed a large proportion of sharp cost inflation.
Signalling an eighth consecutive monthly expansion of Scottish private sector output, the seasonally adjusted Bank of Scotland PMI read 52.7 in August, down from 53.5 in July. Growth remained solid and above the UK average rate of expansion, despite slowing slightly as service sector activity growth moderated.
The latest expansion in total activity predominantly reflected higher levels of new business. Boosted by a robust rise in new manufacturing orders, total new work in Scotland increased at the fastest pace for four months. Dampening overall growth, however, was only a marginal increase in new business at service providers.
August saw a marginal decline in Scottish private sector employment, ending a six-month period of job creation. The decrease was underpinned by job cuts made in the service sector, which were the sharpest since January. In contrast and reflecting a robust increase in new business, goods producers recruited additional staff at a solid pace.
With capacity down and new orders up in August, backlogs of work accumulated for the first time for four years. Although only modest, the build up of outstanding business in Scotland contrasted with declines in all other UK areas covered by PMI data, except for London and the North East.
Cost pressures remained elevated in August, as inputs including utilities and a range of raw materials climbed in price. Moreover, cost inflation in Scotland exceeded that in all other UK regions. Despite sharp input cost pressure, prices charged increased only modestly on average in August. This primarily reflected the actions of service providers, who raised tariffs only slightly as competition intensified.
Donald MacRae, Chief Economist at Bank of Scotland, said:
“With an eighth consecutive month of growth, this is an encouraging PMI. Growth remained solid bringing the PMI Output Index second only to London within the UK. This is a welcome result, suggesting the private sector of the Scottish economy grew, albeit slowly, throughout January to August this year.
“Manufacturing output accelerated at the sharpest rate for four months, while new orders received by manufacturing firms increased for the eighth consecutive month. There was a particularly welcome rise in new export orders which extended the current sequence of growth to ten months.
“Although the services sector saw growth, it was the weakest monthly rise in activity since January. The rate of expansion in services has slowed over the summer, with employment falling for the third month in a row. Nevertheless, the Scottish economy is displaying resilience in the face of a global slowdown so far.”
Source : Bank of Scotland
