Private business sector growth up in positive start to Q4

The Scottish private business sector has made a 'positive start' to the final quarter of 2017, with new orders and employment both expanding, according to a new report out today.

Output rose across the board in September.

But the ongoing weakness of sterling since last year’s Brexit vote means input prices for business continue to rise sharply, warns the latest Bank of Scotland purchasing managers’ index (PMI).

Fraser Sime, regional director, Bank of Scotland Commercial Banking, said: “Scottish private sector companies began Q4 positively, with output growth accelerating to a three-month high. The upturn was broad-based, with both manufacturing and service output expanding at quicker paces.

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“Latest data also pointed to an overall expansion in new business orders although growth was only evident in the service sector. Manufacturers received slightly fewer new business orders albeit higher output allowed backlogs of work to clear.”

In contrast, new business received by service providers – ranging from pubs and restaurants to hotels, transport and IT – lifted at the fastest rate for 34 months amid reports of new contract wins.

The PMI edged up in October to 52.7 from 52.2 in September, where any figure above 50 denotes growth. It was the highest figure for combined manufacturing and services output growth since July “albeit one that was moderate overall”.

On a positive note, the survey, done for Bank of Scotland by IHS Markit, said higher labour costs did not deter businesses from hiring staff, although the rise in job creation was only modest.

However, the report added that businesses still faced the headwind of higher raw material prices despite that easing since September.

Sime said:“Input costs continued to remain in sharp inflationary territory amid reports of higher raw material prices and wage bills.”

The report said anecdotal evidence indicated that greater cost pressures “prompted firms to raise selling prices”.

Meanwhile, higher labour costs did not deter businesses from taking on more staff, although the rate of job creation only quickened “to a modest pace”.

More businesses last month remained optimistic than negative about future growth prospects, but the degree of optimism was the joint-weakest since April.

One economist commented: “This latest data from the private sector is cause for moderate cheer. But while largely positive from output to optimism, the gains are only modest.

“There is no sign of or cause for any gung-ho attitude among Scottish businesses. It is a case of steady as she goes.”

l Retail footfall in Scotland fell by -3.3 per cent in Scotland in October, the sixth consecutive month of decline. It comes ahead of official UK retail sales data this Thursday that is expected to show the first annual fall in four years.