Scotland's economic standing hit as slowdown 'gains moment'

Published on Sunday 8 June 2008 21:37

SCOTLAND has slipped perilously close to the bottom of the UK's economic output league table, figures out today reveal.

The latest data from the authoritative Purchasing Managers Index (PMI) survey shows Scotland has dropped from eighth to tenth in the table of UK's 12 nations and regions.

According to the figures, produced for Royal Bank of Scotland, in May Scotland was only just above the output index for the East Midlands of England and Northern Ireland.

Last night one economic expert put the fall down to a slowdown in financial services.

Scotland's output index – an indication of economic growth – was 46.8 for May, down from 48.3 for April. The figures was positive at 51.4 in March.

May's figure puts Scotland just ahead of the East Midlands, on 46.5, though still ahead of Northern Ireland on 45.8.

However, in April Scotland was ahead of both the West Midlands of England and Wales. Both of these areas are now recording positive figures.

David Fenton, RBS's head of microeconomics, said: "Scotland has a larger financial services sector than the other regions.

"To that extent, activity in this sector – and sentiment which the survey also reflects – is more important in Scotland than most of the English regions."

Looking at the broader picture, RBS says today's figures show that the decline in output, which began at the start of the second quarter had "gained momentum".

Last month's figures showed that nearly half a decade of continuous private sector economic growth in Scotland had come to an end, with output north of the Border in April declining for the first time since June 2003. Today's figures show that trend has continued. Findings from the survey for May include:

&#149 Scottish private sector activity declining for the second month running, and the rate of contraction picking up to its fastest since October 1998.

&#149 New business to private sector firms operating in Scotland declining for the third month running.

&#149 A second consecutive month of falling private sector employment in Scotland , the first back-to-back decline in four-and-a-half years.

&#149 Firms' input costs increasing at the fastest rate in the survey's history.

&#149 Prices charged by Scottish firms increasing at a marked rate, that trend was little-changed.

Fenton commented: "Business conditions took a turn for the worse in May. Slower demand and higher costs are an uncomfortable combination for Scottish companies.

"Some of that demand weakness ought to be temporary. For example, export orders will likely improve given the pound's recent decline against the euro."

He continued: "Part of the reported deterioration will doubtless reflect a fall in sentiment rather than actual business activity. But with little prospect of further rate cuts from the MPC in 2008, companies will have to make the best of a fairly difficult situation."