Service companies lead private sector growth in October

Service companies observed noticeably stronger growth in business activity than the manufacturing sector. Picture: Michael Gillen.
Service companies observed noticeably stronger growth in business activity than the manufacturing sector. Picture: Michael Gillen.
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Output in Scotland’s private sector economy expanded “solidly” in October, outpacing the UK as a whole, according to a report published today.

The latest purchasing managers’ index (PMI) from Royal Bank of Scotland (RBS) showed business activity continued to increase in the first month of the final quarter, as the seasonally adjusted headline index remained unchanged from the previous month, posting 53.4.

This signalled “a solid expansion in private sector output” during the survey period and “sharper”r growth north of the Border than the UK as a whole, according to the report.

Sector data indicated that the expansion was broad-based, although service companies observed a noticeably stronger rise in business activity than their counterparts in the manufacturing sector.

Greater inflows of new work were recorded in Scotland last monthr, overtaking all other monitored regions, with new orders increasing at a broadly similar pace to business activity – and new contract wins, promotional efforts and recently launched product offerings supporting sales growth.

The upturn was driven predominantly by the service sector, as goods producers recorded a second successive deterioration in demand conditions.

Malcolm Buchanan, chair of the Scotland board at RBS, said: “Amid a broader slowdown in growth momentum across the UK as a whole in October, private sector output in Scotland showed resilience, expanding at a solid pace that was unchanged from September, while demand improved at the strongest rate of all 12 monitored UK regions.”

He added: “That said, sector data revealed the upturn was driven by the service sector. Production rose only fractionally in the manufacturing sector as new sales dropped for a second month running.”

The overall rate of job-creation reached a four-month peak and progressed more quickly than the UK average.

Additional recruitment, again spearheaded by service providers, also facilitated a reduction in backlogs of work.

However, businesses reported higher costs pressures during the latest survey period, with a sharp rise in input costs causing pressure on margins and prompting companies to increase their charges.

Despite observing lower sales, manufacturers raised prices at a sharper rate than service providers. Nonetheless, the overall rate of charge inflation was the slowest in ten months.

Scottish firms reported a weak pound, rising raw material prices and greater labour costs as sources of inflation.

Looking ahead, optimism towards future output volumes dipped to a one-year low amid uncertainty surrounding the future relationship between the UK and the European Union, said the report.

Sebastian Burnside, chief economist at RBS, hailed Scotland’s progress, “but even here businesses report that their future prospects are cooling”.