Private sector growth dips for first time in 6 months

Donald MacRae, chief economist at Bank of Scotland. Picture: Contributed
Donald MacRae, chief economist at Bank of Scotland. Picture: Contributed
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BUSINESS activity contracted across the board in Scotland last month – the first private sector decline in six months – amid more downbeat wider UK economic data recently, a report out today reveals.

Volumes of new business fell marginally in September as contraction in output hit both the Scottish manufacturing and service sectors, the Bank of Scotland purchasing managers’ index (PMI) survey for September shows.

The index came in at 49 in September, down from 50.8 in August – 50 measures the cut-off point between growth and contraction. The Scottish new business index fell to 49.8, from 51.4.

The fallback north of the Border followed a five-month sequence of increasing output at Scottish private sector companies.

Manufacturing firms in Scotland reported a fall in new orders, from both the domestic and foreign markets.

The rate at which new business contracted was “sharp” and led to a deterioration in production in the sector, the report said.

“Anecdotal evidence suggested declining output was the result of lower demand,” it said.

Data collected from Scottish service sector companies also highlighted a contraction in activity during the month. This was despite a rise in incoming new business, but the increase was at the slowest rate in seven months.

Latest survey data signalled a “modest expansion” in headcount numbers at Scottish ­private sector firms. Growth was led by the service sector, while manufacturing companies registered a more modest rise in employment.

Donald MacRae, chief economist at Bank of Scotland, said: “September’s PMI showed a broad-based decline in economic activity across both service and manufacturing sectors.

“New export orders fell for the eighth month in a row.

“The slowdown in the Scottish economy identified in ­summer has taken further hold in the month of September, but employment intentions suggest a return to moderate growth in coming months.”

Last Friday, official data showed that UK construction, which accounts for about 6 per cent of the economy, fell 4.3 per cent in a rainy August – the sector’s largest contraction in more than two-and-a-half years.

And earlier last week, a ­survey from Markit and the Chartered Institute of Procurement and Supply (Cips) showed that growth in the UK’s dominant services sector had its weakest quarter in the three months to September in nearly two-and-a-half years. The sector accounts for 75 per cent of the UK economy.

On a more positive note, another report out today says Scottish business optimism heading into 2016 has risen for the first time in more than six months.

Business advisers BDO says in its latest business trends report that its optimism index rose to 102.2 from 101.9 in September.

“This confidence is underpinned by continuing low inflation rates, which are helping manufacturers in particular,” the BDO survey said.