Rates fear as private sector growth eases in April

Donald MacRae said recovery continued in the manufacturing and service sectors
Donald MacRae said recovery continued in the manufacturing and service sectors
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Scotland’s private sector growth slowed last month, falling further behind the rate of expansion being experienced in England, according to the latest business surveys.

The Bank of Scotland purchasing managers’ index (PMI), published today, comes amid mounting speculation that interest rates may have to rise sooner than previously expected due to the speed of the recovery and rocketing house prices in the south of England.

The PMI shows output rising in April, but the pace of expansion was the slowest in 2014 so far. The labour market also continued to improve, but the rate of staff hiring was at its slowest since January.

April’s survey produced a headline figure of 54.8 on a scale where 50 separates contraction from expansion and which aims to give a single-figure measure of the month-on-month change in combined manufacturing and services business activity.

It compares to 56.4 in March, while in England the equivalent PMI from Lloyds Bank climbed from 58.1 in March to 59.3 in April.

However, Donald MacRae, chief economist at Bank of Scotland, said the reading north of the Border was solid and consistent with a decent pace of economic growth.

He said: “The recovery is broad based with output growing in both services and manufacturing sectors, accompanied by rising employment and a growing level of new business.”

Both manufacturers and services firms recorded notable rises in output, though in each case growth was slower than during March.

Bank of Scotland pointed out that its PMI has trended at a relatively high level by the historical standards throughout the opening quarter.

And in contrast to the slowdown in output growth, the level of new business placed with private sector firms rose at a faster rate in April. Data showed that the domestic market was the key driver of the upturn, with new export orders at manufacturers having fallen marginally for the third consecutive month.

MacRae said that a strong pound may be contributing to the weakness in exports.

Meanwhile, the latest research by Clydesdale Bank shows Scotland’s small and medium-sized enterprises (SMEs) are ready to invest more than £7 billion in the next 12 months as their confidence in the economy improves.

New equipment, staff training and creating jobs are top of the shopping list for Scottish SMEs, which plan to capitalise on improving economic conditions by growing and investing.

More than four out of five Scottish SMEs said they plan to make a “significant investment” in the next year.

On average, Scottish SMEs are set to invest around 9 per cent of their turnover back into their businesses, up from 8 per cent a year before. Clydesdale said that could be worth around £7.3bn to the Scottish economy.

Scott McKerracher, head of business and private banking at Clydesdale Bank in the east of Scotland, said: “An increasing level of confidence is playing a critical role in fuelling the recovering economy, and our ongoing research indicates that as business optimism returns, the SME segment in Scotland is actively preparing to change up a gear to take advantage.

“Compared to this time last year, we believe an increasing number of businesses are now preparing themselves for growth. New staff, premises and equipment are the tools which will allow businesses to create that growth.”