Scots firms enjoy positive outlook for 2024 after further rise in activity in January, according to report from Royal Bank of Scotland

Royal Bank of Scotland reports sector enjoying return to growth mode in latest purchasing managers’ index report.

Scotland's private sector “maintains a healthy outlook” for output in the coming year, after enjoying a renewed rise in business activity in January, although the economic backdrop could “undermine” growth prospects, according to new data published today.

Royal Bank of Scotland (RBS) has unveiled its latest purchasing managers’ index report, with the headline reading increasing to 51.7, up from 49.4 in December, and showing that private sector output expanded for the first time in six months. A figure above 50 indicates expansion, and below, contraction. The upturn was found to be solely reliant on the gains made in the service sector, while manufacturers reported a further sharp reduction in production volumes.

The NatWest-owned lender said the new business index rose for the second successive month to score a reading of 49.7, driven by a stronger rise in inflows at service-providers amid an improvement in demand conditions, new client wins and increased advertising, but it was below 50 for the seventh month in a row.

In terms of sentiment, Scottish private sector firms remained confident regarding the year-ahead outlook, with the future activity index reaching 60.9. RBS said hopes for an improvement in business conditions and increased marketing plans were said to have underpinned expectations, although the degree of confidence dimmed slightly from December's seven-month high. Turning to the Scottish labour market, this remained resilient, with employment now rising for a year, and this index coming in at 52.5, although job-creation was limited to the service sector.

January data revealed a ninth consecutive monthly decline in outstanding business, to reach a reading of 48. “The rate of depletion softened notably from December's recent record and was modest. Reduced business activity and sustained growth in employment allowed firms to work through any outstanding tasks,” said the lender.

It added that cost burdens rose in January, continuing the trend that began in June 2020, with the input prices index settling at 62.9, with the rate of inflation quickening from the recent low in December to a five-month high, and substantial overall. Rising fuel, energy and salary costs, plus increased prices from suppliers, were said to have pushed up input costs.

Meanwhile, prices charged by Scottish private sector companies rose at a historically sharp and slightly accelerated pace, with this index reaching 57.8, the increase widely attributed to the pass-through effects of growing cost burdens. Of the report's 12 monitored regions and nations, Scotland recorded the sharpest rise in charges levied for the provision of goods and services.

RBS said the headline reading increasing to 51.7, from 49.4 in December, was 'solely reliant on the gains made in the service sector' (file image). Picture: Getty Images/iStockphoto.

Judith Cruickshank, chair of the Scotland board at RBS, said: "The Scottish private sector recorded an uplift in activity at the start of the year. The upturn was the first seen in six months and solid overall. However, growth was imbalanced, centred solely at service providers who have shown resilience amid a subdued economic climate. Meanwhile, the manufacturing sector reported a further sharp deterioration. Going forward, Scotland's private sector maintains a healthy outlook for output in the coming 12 months. However, elevated inflation and interest rates as well as lingering economic uncertainty could undermine growth prospects."

The data follows a separate report from RBS finding that permanent staff placements and temporary jobs fell steeply in January.