Scots economy returns to growth despite jobs decline

Scotland's economy returned to growthlast month thanks to an upturn in new business. Picture: John Devlin
Scotland's economy returned to growthlast month thanks to an upturn in new business. Picture: John Devlin
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Scotland’s private sector returned to growth territory last month thanks to an upturn in new business but staffing numbers fell for the first time in five months, raising questions marks over the resilience of the economic recovery.

Despite the growth in both output and new work, the latest Bank of Scotland purchasing managers’ index (PMI) – published today – also reveals a further deterioration in backlogs of work north of the Border, where economic growth has been trailing the rest of the UK.

The seasonally adjusted activity index – a measure of the month-on-month change in combined manufacturing and services output – edged up to 50.3 in December, from 49.8 a month earlier. Any reading above 50 denotes expansion.

Staffing numbers in Scotland’s private sector – accounting for over half of the overall economy – declined for the first time since July. However, the rate of job shedding was weak, the report noted. Manufacturers linked falling employee numbers to necessary redundancies.

The PMI survey coincided today with the release of BDO’s latest employment index, which provides an indication of companies’ intentions to hire. Although still on a downward trend from November 2014 when it hit 113.8, then index remains positive at 105.1.

The accountancy firm said this suggested that employment would continue to increase over the coming months, “albeit at a slower rate”.

Bank of Scotland said the modest rise in private sector output last month was led by service providers, as manufacturers registered a further decline in production.

While new business received by Scottish firms increased, the rate of growth was described as “marginal”. The service sector reported a modest expansion in new work, but manufacturing companies registered a “solid contraction” in incoming new orders.

Despite higher average cost burdens, output prices fell for the fifth month running.

Alasdair Gardner, Bank of Scotland managing director for commercial banking in Scotland, said: “Despite returning to expansion territory, Scottish manufacturers struggled to cope with a lack of new orders from both domestic and foreign markets.

“This acted as a brake on overall output growth. On a positive note, service providers showed signs of economic optimism, with headcounts and new business levels expanding. However, these improvements were marginal, and insufficient to propel the economy in a higher gear at the end of 2015.”

The surveys come ahead of new Scottish GDP figures. Last month, it emerged that the UK economy had grown by 0.4 per cent in the third quarter of 2015, down from a previous estimate of 0.5 per cent.