Faltering private sector adds to gloom of Scots economic outlook

SCOTLAND’S economy remains mired in recession after private sector output suffered its first fall in nearly two years, a key report out today reveals.

The latest Bank of Scotland purchasing managers index (PMI) also highlights mounting cost pressures for businesses, with input price inflation hitting an eight-month high.

September saw a third straight monthly decline in the amount of new business placed with firms. While service sector business remained robust, the report pointed to a sharp drop in new orders for manufactured goods.

The survey’s headline output index slipped from 50.3 in August to 49.6 last month – just below the 50 level that separates growth from contraction. It contrasts with modest growth across the UK as a whole.

There was better news for Scottish jobs, though, with employment remaining steady in September.

Today’s survey, which is compiled for the bank by research firm Markit, is one of the most authoritative of its kind, polling purchasing executives at 600 companies. The panel is said to be selected to “accurately replicate the true structure of the Scottish economy”.

Donald MacRae, BoS chief economist, said: “The PMI ended a 20-month run of positive readings, showing the private sector of the Scottish economy contracting slightly in September.

“Growth in services activity did not quite offset a fall in manufacturing output. However, employment did grow in the month while the rate of decline in new orders eased since August.

“The Scottish economy is struggling to maintain growth momentum in the face of both the eurozone and global slowdowns.”

The private sector accounts for about half of the economy north of the Border. Other recent surveys have painted a mixed picture, though economic output – measured in gross domestic product – is tipped to have turned modestly positive in the third quarter.

A spokesman for the Scottish Government said: “As our draft Budget demonstrated, we are taking action to boost growth and this includes a tax relief package worth over £500 million this year and a further £105m package of economic stimulus.

“The latest Scottish labour market statistics showed positive indicators of recovery – Scotland has a higher employment rate than the UK as a whole – but the UK government needs to realise that more needs to be done.”

Businesses quizzed for the survey pointed to increases in fuel, food prices and a range of other commodities. The rate of input price inflation was found to be higher than the UK average.

Service providers continued to face stronger input inflation than their manufacturing counterparts.

• The outlook for the UK economy continues to be “challenging”, a report out today warns, after a dip in business employment intentions. Accountancy firm BDO’s employment index, which measures companies’ hiring intentions over the next two quarters, fell to a 28-month low of 90.7 in September.

Neil Craig, partner and head of BDO in Scotland, said: “With tough business conditions becoming further ingrained, there is no quick fix to the UK economy’s ails. However, despite the current slight downturn, we welcome the continued surprising strength of the UK labour market.”