Mixed news on private-sector growth

Published on Sunday 13 September 2009 19:18

SCOTLAND'S economy remains vulnerable despite an increase in private-sector output, according to an influential survey published today.

The Markit Scotland purchasing managers index (PMI) shows that, while activity across the private sector rose for the second successive month in August, the rate of growth has slowed.

Private-sector output in Scotland is also lagging a considerable way behind the rest of the UK, the survey reveals.

Economists are warning that Scotland's path to recovery will not be as smooth or as fast as previously hoped, with much of last month's new business being driven by discounting.

Andrew Self, an economist at Markit, said: "The Scottish private economy expanded for the second successive month during August, providing further evidence that the private-sector economy is slowly pulling out of deep recession.

"However, the rate of output growth eased on July and continued to lag behind the UK as a whole, suggesting the road to recovery north of the Border may not be as direct as first hoped.

"New business also rose during August and, while the rise is beneficial to the short-term outlook, new contracts were won on the back of sharp discounting, notably by manufacturers."

Markit's business activity index, which measures the combined output of Scotland's manufacturing and service sectors, hit 51.6 points in August, down from 52.1 in July, prompting warnings that Scotland's economy has not yet stabilised.

Survey respondents said that, although they were enjoying a rise in new business, the recession had still left them with spare capacity.

However, Stephen Hester, chief executive of Royal Bank of Scotland, has warned of the dangers of a rapid economic recovery, advocating instead a "slow rate of recovery while the economy repairs itself".

At the weekend, Hester said that the UK runs the risk of emulating Japan's "lost decade" of the 1990s unless it addresses crucial economic imbalances.

A number of economic indicators have recently raised hopes that the UK has exited the recession, with the FTSE 100 last week climbing above 5,000 for the first time in almost a year.

Despite the uncertainty created by last month's easing of private-sector growth, a survey of business managers by Clydesdale Bank out today shows that Scots businesses feel more confident about the future than their counterparts south of the Border.