Pace of recovery slows after firms hit by drop in exports

Growth in Scotland’s private sector economy has eased to its slowest pace in more than a year following the fourth month in a row of falling export orders, according to a new report.

Finance Secretary John Swinney welcomed the figures. Picture: Gareth Easton

However, today’s Bank of Scotland’s purchasing managers’ index (PMI) found employers in the manufacturing and services sectors continued to create jobs on the back of strong domestic demand.

Inflationary pressures also eased slightly, with input prices rising at their second-lowest rate in almost two years, although a lack of available candidates drove up wage bills for services firms.

Donald MacRae, chief economist at Bank of Scotland, said: “May’s PMI report signalled further solid expansion in output and new business in the month.

“Both manufacturing and service sectors recorded growth and rising employment, while inflationary pressures eased with both input and output prices rising at slower rates.”

Although the PMI reading of 54 was down on the previous month and the lowest figure since April 2013, it remained above the 50 level that separates growth from contraction.

Finance Secretary John Swinney said: “We welcome these figures, which indicate Scottish private sector activity expanded for the 20th consecutive month in May, driven by strong growth in both the services and manufacturing sectors.

“The survey results follow on from recent GDP and labour market statistics which showed that employment levels are at their highest since records began in 1992. The recovery in Scotland’s economy is continuing, with growth widely forecast to accelerate this year.”

The Bank of Scotland report found that growth in private sector output and new business continued to have a positive impact on the labour market, with data pointing to net job creation for the 18th straight month. The rate of increase in employment was described as “solid”, albeit the slowest in four months and well below the UK-wide average.

The study came as EEF, the manufacturers’ organisation, said Scottish companies are predicting higher output and orders during the third quarter of the year amid improving confidence in the economic recovery.

Its latest quarterly manufacturing outlook survey, produced with accountant BDO, showed 28 per cent of firms north of the Border expect output to rise in the coming three months, up from 25 per cent that reported an increase for the second quarter. Employment is also predicted to continue growing.

Martin Gill, head of BDO in Scotland, said: “Government policy is clearly paying dividends and is creating an environment in which manufacturers are comfortable enough to commit to future investment, both in terms of employment and capital.

“This is a very positive indicator for the rest of the year. What is now needed is a focus on this success in the UK so that it can be replicated abroad and we would encourage government, both at Holyrood and in Westminster, to introduce more supportive measures to support exports, especially given the tentative nature of economic recovery in Europe.”

According to the PMI, manufacturers suffered a “solid and accelerated” decrease in new export orders during the second quarter, with the index reading for May falling for the fourth consecutive month to its lowest level so far this year.