Scotland's private companies show lacklustre growth

Scotland's private sector barely edged into growth last month as it faced the headwinds of continuing higher input prices amid the fall in the value of sterling and flat new business activity, a new report out today shows.

A small increase in new business for the services sector, which includes hotels, was offset by a decline among manufacturers. Picture: Robert Perry

Output growth slackened and the volume of incomplete work rose in October, says the latest Bank of Scotland purchasing managers’ index (PMI), while stagnation in new order intakes followed a marginal expansion in September.

The PMI – a single figure measure of the month-on-month change in combined services and manufacturing output – fell to 50.6 last month. That was down on 51.2 in September, where any figure above 50 denotes growth and below 50 decline, pointing to a “softer overall upturn”, the report said.

Both manufacturers and service providers reported marginal growth in business activity levels, with a ­modest increase in overall headcount, chiming with a recent steady picture of jobs growth in the wider UK.

It was the third successive month of job creation in the Scottish private sector, despite the biggest rise in input costs, such as raw materials, since September 2011. Costs have risen throughout the summer since the pound plunged in value after June’s Brexit vote.

“That said, the latest increase in staffing levels was the weakest during this trend,” the PMI report noted.

Nick Laird, regional managing director at Bank of Scotland commercial banking, said: “Output for Scottish private sector companies continued to show growth in October, albeit at a reduced rate weighed down by a combination of higher input prices and stagnating new business.

“The increasing cost burden is a cause for concern, with the rise in input costs growing at the quickest rate in just over five years attributed to the depreciation of sterling. Encouragingly, workforce numbers rose for a third ­consecutive month. Yet with a further solid decline in backlogs of work recorded, we could see jobs growth come under pressure towards the end of the year.”

New order intakes in Scotland’s private sector stagnated. A small increase in new business in the services ­sector – ranging from transport, pubs and hotels to IT and accountancy – was offset by a slight contraction in the ­manufacturing sector.

Private sector companies reported the quickest deterioration in outstanding ­business for eight months. Where a decline in incomplete work was recorded, firms generally reflected on a fall in new orders, stemming from market uncertainty.

Today’s report said that, in line with the higher input prices, private sector companies operating in Scotland raised their selling prices further.

“Although the rate of inflation was the fastest since February 2014, it remained weaker than that for input costs,” it added.

Click here to ‘Like’ The Scotsman Business on Facebook