Scotland is hit by slump in demand

Published on Monday 13 January 2003 00:00

DEMAND for goods and services in Scotland fell to its lowest level for 13 months in December according to the Royal Bank of Scotland, which said the slowdown was most evident in the manufacturing sector.

In its latest Purchasing Managers’ Index report, the bank said manufacturing output fell below the critical 50 level, indicating a "marginal contraction".

Output in the services sector during December remained above 50, but was lower than any other month in 2002, while financial services was the only sector to show "robust" growth.

Jeremy Peat, chief economist at the Royal Bank, said: "Within services, tourism and leisure were the hardest hit, but it’s important for Edinburgh that financial services continued to be strong.

"Costs, meanwhile, continued to rise at a robust rate and, with strong competition preventing firms from raising their prices during the month, margins continued to be squeezed."

Employment levels fell for the sixth month running in December, with staffing levels in the services sector falling for the first time in four years. Meanwhile, costs continued to rise, with many firms blaming higher fuel, commodity and salary costs, and figures today from the Office for National Statistics backed up the bank’s findings.

ONS said the cost of raw materials surged 2.8 per cent last month, their fastest rate in more than two years, led by a steep increase in crude oil prices.

Mr Peat said: "Given these trends, alongside further evidence of margin squeeze, the private sector employment outlook for the early in the new year is not encouraging."

Slowing consumer spending will push the UK to the bottom of the world economic growth league next year, a new report has warned.

The Centre for Economics and Business Research (CEBR) said Chancellor Gordon Brown could also struggle to finance public spending plans.

But a separate report by a leading economic think-tank said the UK economy is more likely to ride out the consequences of a war in Iraq than other EU countries.

Oxford Economic Forecasting (OEF) said the UK’s interest rate policy and stronger business and consumer demand should keep its growth above the eurozone’s.