Scotland's private sector moves into contraction mode

Demand for Scottish goods and services fell at the sharpest pace in almost four years last month, according to new data published today and prompting a call for action to strengthen competitiveness north of the Border.

Latest Bank of Scotland PMI data reveals challenging start to third quarter. Picture: Toby Williams

Bank of Scotland said in its latest purchasing managers’ index (PMI) that Scotland’s private sector experienced a downturn at the start of the third quarter, on new business intakes experiencing the steepest drop in 47 months.

The lender’s headline PMI, measuring the month-on-month change in combined manufacturing and services output, fell to a four-month low of 49.2, down from 50.5 in June.

Graham Blair, regional director of SME banking in Scotland said, “The start of the third quarter was challenging for Scottish private-sector firms, as declining demand conditions knocked the economy back into contraction during July.

“New business levels fell at the sharpest pace for nearly four years, with the decrease across both manufacturers and service providers.”

He added that it was, however, “encouraging” to see employment levels plateau, and employee numbers stabilised overall in July, ending seven months of jobs cuts. However, there was a split between growth in Scotland’s service sector workforce and a fall in its goods-producing firms in the month.

Commenting on the PMI data, Scottish Council for Development & Industry director of policy and place Claire Mack said that combined with last week’s interest-rate cut, “this sharp fall in output and new business highlights the challenging transition period” faced by the Scottish and UK economies.

She added: “Whilst employment levels look to be stabilising in the short term, it is vital that we continue to see investment in our infrastructure to ensure that Scotland can increase its competitiveness.”
Also commenting was Peter Hemington, partner at BDO, as the organisation’s latest business trends study found that Britain’s business confidence is now at its lowest in more than three years after dropping in the aftermath of the Brexit vote.

BDO’s optimism index, which predicts growth six months ahead, last month fell to 97.9 from 98.9, while business output, reflecting companies’ experience of orders for the three months ahead, now sits at 98.2, down from 99 in June.

Hemington said: “Brexit has compounded the continuing slowdown of the UK economy but there is opportunity as well as challenge ahead for UK businesses. We now need a concerted effort from government to lay the foundations for future growth.”

Blair said: “Following the outcome of the EU referendum it is still too early to understand the full impact for businesses across Scotland but we are ready to support them so that they are well-positioned to meet any challenges ahead”.