Scotland’s private sector grows for ninth month in a row

Donald MacRae: Encouraged by expansion in economic activity

SCOTLAND’S private sector economy grew for the ninth month in a row during March, despite businesses facing the sharpest rise in costs in almost a year and a half.

Today’s Bank of Scotland Purchasing Managers’ Index (PMI) provides further evidence that the economy has turned a corner, with production levels at manufacturing plants hitting a 12-year high.

The survey’s main activity index registered 52.3, down from February’s reading of 54.3, but still comfortably above the 50 mark that denotes expansion.

While manufacturers witnessed robust demand, service providers registered a modest drop in activity levels as adverse weather took its toll.

Of some concern will be the news that cost inflation across the board rose at the fastest pace in 17 months. Higher raw material costs, fuel and wages were all cited as factors.

It follows Friday’s revelation that UK factory gate prices had risen at their sharpest rate in 16 months during March, reigniting general fears over inflation.

Today’s PMI survey noted that Scots businesses had only been able to pass on part of the increased costs through higher pricing, due to “strong competitive pressures”.

Donald MacRae, chief economist at Bank of Scotland, said: “It is very encouraging to see an expansion in activity in the Scottish private sector, however the economy still has a number of challenges to confront.”

Recently revised figures from the Office for National Statistics showed the UK economy grew by 0.4 per cent in the fourth quarter of 2009 – ending the deepest period of contraction in 60 years.

Scotland remains in a technical recession, however, as corresponding Q4 figures have yet to be published north of the Border.

The latest PMI data provides some reassuring news on the jobs front, too, with the third “modest” rise in headcount numbers in the past four months.