Scotland’s economy: Domestic orders give boost

SCOTLAND’S economic recovery will be given a boost this morning when figures reveal the biggest jump in business activity for more than two years amid a raft of positive reports on the health of the broader UK economy.

Figures say output from the Scottish private sector has grown at its fastest clip for 25 months in May. Picture: Getty

Output from the Scottish private sector rose at its fastest pace for 25 months in May, leading to the biggest increase in employment for more than a year.

Both factory production and service sector activity rose at faster rates than in April, posting their sharpest increases in 12 and 13 months respectively.

Growth from Scotland’s economy matched similar figures published for the English regions.

Yet the recession in the eurozone dented exports, with manufacturers reporting a fall in overseas orders.

Donald MacRae, chief economist at Bank of Scotland, which compiled the purchasing managers’ index (PMI) report, said: “These results show the recovery in the Scottish economy is
becoming more strongly embedded with every passing month.

“At 54.4, May’s PMI is not only the highest for 25 months but has now been above the no-growth level of 50 for eight months in a row.

“Output grew in manufacturing and activity was strongly up in the large services sector with an encouraging rise in new orders across the economy evident for the sixth month in succession.

“However, growth appears confined to the domestic market with new export orders falling slightly in the month, illustrating the effects of the recession in the eurozone.”

News of the slowdown in overseas orders came as a major report from the British Chambers of Commerce (BCC) revealed that a lack of knowledge about international markets and poor foreign language skills are holding back potential exporters.

Following a survey of more than 4,500 companies, the BCC has called on universities and colleges to include compulsory modules on exporting in their business degree and further education courses, and for the UK government to provide financial incentives so that non-exporting companies train their staff to handle overseas sales.

BCC director general John Longworth said: “It is critical that firms understand the challenges and opportunities attached to the export market. Helping companies forge new connections, through trade promotions and incentives, will help companies to think internationally.”

The Bank of Scotland’s PMI report came amid a flurry of positive indicators for the health of the UK economy.

A special report from accountancy firm Ernst & Young’s Item Club think tank predicted that consumer spending will rise by 1.2 per cent this year and 1.9 per cent next year thanks to income tax cuts and higher employment.

But the Item Club warned that household spending will not recover to pre-recession levels for a further two years.

Meanwhile, business confidence has risen to its highest level since May 2012, according to accountancy firm BDO’s monthly business trends tracker.

Last week’s positive PMI reports from the Chartered Institute of Purchasing & Supply and Markit have also promoted Howard Archer, chief UK and European economist at IHS Global Insight, to raise his forecasts for economic growth this year to 1 per cent from 0.8 per cent.