Scottish businesses see growth grind to halt in February

Scotland’s private sector economy headed towards stagnation last month with firms also cutting job numbers for the first time since October, according to a new report published today.

According to the latest Royal Bank of Scotland PMI report, the economy only grew by a fraction. Picture: Jon Savage.

According to the latest Royal Bank of Scotland PMI report, the economy only grew by a fraction as a small decline in services activity almost offset renewed growth in manufacturing production.

Although overall new business reported by firms increased for the second month running, the pace of growth slowed from the previous month.

The bank’s seasonally adjusted business activity index – a measure of combined manufacturing and service sector output – posted 50.1 in February, down from 52 in January.

The latest data also highlighted a further rise in cost burdens facing Scottish private sector firms, as has been the case in each month for four years. Greater raw material and wage costs were the main drivers of inflation during February, according to panellists.

Malcolm Buchanan, chair of the bank’s Scotland board, said weak foreign demand and further uncertainty appeared to be weighing on growth.

Higher confidence

“On a positive note, business confidence climbed to a 20-month high, with anecdotal evidence linking optimism to hopes of improved client demand,” he said. “Nonetheless, sentiment in Scotland was the second-lowest across the 12 monitored UK areas, with only Northern Ireland reporting a softer outlook.”

The latest BDO Business Trends report, which was also published today, also showed optimism across businesses in the UK jumped by the largest margin in a decade in February. However the report’s authors said the prospect of the continued spread of coronavirus could threaten to reverse much of the gains.

Kaley Crossthwaite, partner at BDO, said: “We have just witnessed the most significant uplift in business optimism in ten years, and the impact of greater political and economic certainty brought by a new majority government should not be underestimated. However, businesses will now be spending the coming weeks focussed on mitigating the uncertainty caused by coronavirus.”

The overall jump in business confidence in the UK was driven by BDO’s services optimism index, which increased by 6.52 points to 102.38, while the manufacturing optimism index rose marginally in February by 0.13 points to 95.82.

It said the comparatively smaller rise in manufacturing optimism reflects the fundamental problems facing the sector, including the higher cost of trade that will be imposed by leaving the EU.

Elsewhere in BDO’s Business Trends report there were clear signs of the impact of coronavirus. BDO’s inflation lndex fell by 0.48 points to 95.59, largely driven by dwindling commodity prices caused by factories in China temporarily shutting down.