Scotland's private sector output loses steam in 'increasingly challenging environment'

Business growth in Scotland's private sector has increased at its slowest rate in five months, figures show.

Combined manufacturing and service sector output stood at 54.4 in June, according to the latest Royal Bank of Scotland (RBS) purchasing managers' index (PMI) data, which was down from 55.9 in May.

This decrease shows the slowest expansion in business activity across Scotland since January, the report said. In addition, data showed new orders rose at a modest pace that was the weakest seen in 15 months.

While business confidence at Scottish private sector firms remained strong in June, the degree of optimism slipped to a 20-month low amid concerns over the cost of living, a possible slowdown in the economy and housing market, and weaker customer confidence.

Optimism across the Scottish private sector was also weaker than that seen across the UK as a whole. Private sector firms north of the Border continued to expand their workforce numbers during June. The rate of job-creation eased from May's seven-month high but remained stronger than the series average. Of the 12 monitored UK regions, Scotland registered the weakest expansion in employment.

A 25th monthly rise in average cost burdens was recorded across the Scottish private sector during June. While the rate of input price inflation eased for the second month running from the survey high recorded in April, it remained amongst the steepest on record.

Rising supplier, energy and raw material prices amid ongoing shortages were blamed for the latest surge in costs. Though rapid, the increase in input prices across Scotland was the softest of all the 12 monitored UK regions.

Malcolm Buchanan, chair of the Scotland board at RBS, points to 'signs of a further slowdown in momentum'. Picture: Gary Baker.

Private companies across Scotland raised their charges in June, stretching the current bout of output price inflation to 20 months. The pace of inflation eased on the month to register the slowest since January.

However, the report showed figures remained well above the historical average, indicating a sharp increase in charges levied. On a regional basis, Scotland recorded the joint-weakest rate of output charge inflation across the 12 monitored UK areas, on a par with the east of England.

Solid

Malcolm Buchanan, chairman of the Scotland board of RBS, said: "The Scottish private sector recorded another solid increase in output during June. That said, there were signs of a further slowdown in momentum, as activity and new orders increased at the weakest rates in five and 15 months respectively. Moreover, the latest survey data signalled contractions in output and orders across the manufacturing sector.

"Nonetheless, the sustained upturn in business activity and efforts to build capacity led firms to bulk up their workforce numbers for the 15th successive month during June.

“However, ongoing shortages of materials, increased energy prices and higher wages all contributed to another surge in input costs during June. The rate of input price inflation eased only slightly from May, and remained amongst the fastest on record.

"The softer expansions in activity and sales, surging prices and ongoing global uncertainty underscored an increasingly challenging environment for Scottish private sector firms, and led to a decline in business confidence to a 20-month low.”