Services drive improving performance by Scotland’s private sector

Donald MacRae: 'The increase in new business is & encouraging'
Donald MacRae: 'The increase in new business is & encouraging'
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SCOTLAND’S private sector ended 2012 on a sound footing and is entering 2013 “in growth mode”, with the latest estimate showing firms hired workers in December as orders picked up.

The Bank of Scotland’s purchasing managers’ index (PMI) for December, published today, came in at 51.2, its highest mark since June and up from 50.3 in November.

The score indicates moderate growth in private sector activity and suggests Scotland outperformed the wider UK economy, which stagnated in the final month of the year.

An accelerated rise in activity from service providers was behind the expansion in output north of the Border, with goods production decreasing further.

Unlike firms south of the Border, Scottish businesses saw an increase in new orders coming in from clients – the first rise since the first half of 2012.

The data also signalled a solid and accelerated decrease in backlogs of work at private sector companies in Scotland. The latest reduction was the sixteenth in consecutive months, and the sharpest since July.

Scotland’s labour market benefited from the improved trends in output and new orders, with businesses recording the fastest rate of job creation for five months.

Bank of Scotland’s chief economist, Donald MacRae, said: “The PMI for December showed a welcome rise to its highest level for six months, indicating a return to moderate growth in the Scottish economy. The increase in new business and the rise in employment are particularly encouraging.”

He added that a pick-up in new export orders meant manufacturing should also enjoy a return to growth “in the coming months”.

“These results give hope that the Scottish economy has exited the recent period of slowdown and is entering 2013 in growth mode,” MacRae said.

The survey comes after recent disappointing data stoked concerns that Britain’s economy shrank once again in the final three months of last year.

The latest optimism index from accountant BDO added to those fears today. It showed UK business confidence is weakening as firms’ negative turnover expectations become more pessimistic. The index, in which 95 indicates an expectation of flat revenues – decreased to 93.1 from a reading of 93.4 last month.

Economists are already predicting a contraction in gross domestic product (GDP) in the fourth quarter of 2012, possibly extending into the opening three months of 2013.

It comes after a strong return to growth in the summer quarter, which saw the UK exit its “double dip” recession as the economy grew by 0.9 per cent.

However, the figure benefited from a number of one-offs, such as Olympic ticket sales, which were all counted at the time the Games were held irrespective of when they were bought.

Officially, a recession is defined as two consecutive quarters of economic contraction but a negative reading in the Office for National Statistics’ estimate of fourth-quarter performance on 25 January will spark claims the UK has suffered a “triple dip”.