Scots private sector stalls despite new orders boost

Donald MacRae said that the government sector will have to bear the brunt of growing Scotland's economy in January to March this year. Picture: TSPL

Donald MacRae said that the government sector will have to bear the brunt of growing Scotland's economy in January to March this year. Picture: TSPL

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SCOTLAND’S private sector economy has slipped into reverse gear for the second time in three months despite an increase in new work, a key report today reveals.

Falling oil prices, poor weather and the new lower alcohol limit all contributed to a dip in economic activity during March, according to the latest Bank of Scotland’s purchasing managers’ index (PMI).

Exporters have been affected by falling euro

Donald MacRae

It shows that a slight increase in manufacturing output last month was not enough to offset a fall in the much larger services sector.

The report’s headline figure for ­private-sector activity dipped from 50.2 in February to 49.4, the second time in the past three surveys a fall in output was recorded. The figure measures month-by-month changes in output across both the manufacturing and service sectors.

Based on the findings from some 600 businesses, the PMI is regarded as one of the most authoritative soundings on the state of Scotland’s private-sector economy, which account for about half of total output.

Donald MacRae, chief economist at Bank of Scotland, said: “March’s PMI confirmed a poor month for the private sector of the Scottish economy, with marginal growth in manufacturing output not quite offsetting a slight fall in services activity. The government sector will have to bear the brunt of growing Scotland’s economy in January to March this year.

“Manufacturing exporters have been affected by the falling euro while services businesses in hospitality are seeing a changing pattern of spending resulting from the lowered alcohol limit while driving. All are affected by subdued business confidence associated with the fall in the price of oil and bad winter weather.”

However, he added: “Recovery is on the way with levels of new business increasing, employment rising in all sectors and the oil price up 20 per cent from January’s low.”

The financial, travel, tourism and leisure sectors were the hardest hit last month, while activity rose at business services companies.

The picture was reversed for new business, with manufacturers recording a drop in new orders for the third month in a row as a result of lower demand in the oil and gas industry, while service providers recorded modest growth.

The report noted: “There were reports from panellists of a renewed confidence amongst companies and within markets in general. Economic conditions were reported to be better and that marketing had also bolstered growth.”

Deputy First Minister and Finance Secretary John Swinney said: “Whilst the Bank of Scotland’s PMI indicated a slight softening in economic activity at the start of the year, it also shows some encouraging signs of improvement, with their report of prospects for new orders and employment both looking up.

“Recent labour market data has shown that employment in Scotland continued to increase as the start of the year, whilst the Bank of Scotland’s business monitor reported that business expectations for the volume of business, turnover and exports over the next six months are positive.”

He added: “Challenges do remain for Scottish businesses, with the impact of falling oil prices on the oil and gas industry, sterling’s continued strength against the euro and continued weakness in the euro area.”

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