Scots firms return to growth after two months of decline

Scottish business activity returned to growth in December after two months of decline, helped by a modest rise in new orders alongside a 'rebound' in job creation, a new report out today shows.

The Bank of Scotland report also found that job creation was running at a four-month high. Picture: John Devlin

However, the overall picture remained firmly mixed last month, with firms raising their selling prices at the fastest pace since April 2011 as their input cost inflation also touched a five-and-a-half-year high following the plunge in the pound since last June’s Brexit vote.

The Bank of Scotland purchasing managers’ index (PMI) report showed that its reading for combined manufacturing and services output – where any figure above 50 denotes expansion – reached 50.7. This was up from November’s 49.4 to its highest level in three months.

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“Although output returned to growth territory, the pace of increase remained below the long-run series average,” the BoS report said.

“The expansion was broad-based across Scotland’s manufacturing and service sectors, with panel members linking this to stronger underlying demand.

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It added that Scotland’s private sector saw a slight increase in new business during the final month of 2016, ending a two‑month sequence of decline.

December survey data also pointed to a return to growth in Scotland’s workforce numbers as the rate of job creation hit a four-month high.

Nick Laird, regional managing director, Bank of Scotland Commercial Banking, said: “With output, new orders and employment all returning to growth, and backlogs slowing, Scotland’s economy bounced back at the end of 2016.

“The improvement in business conditions across both the manufacturing and service sectors puts Scotland on a firmer footing as we start the New Year.

“Headwinds remain, however, principally through the continued increase in input costs, which rose at their sharpest pace for 67 months. Given the strain this will place on operating margins, firms throughout Scotland will undoubtedly be looking for this to ease during the year ahead.”

On the healthier employment picture in Scotland, today’s report said: “Although the rate of job creation was at a four-month high, it remained only moderate. Where a rise in headcounts was reported, firms generally associated this with greater workloads.”

Regarding the sharp rise in cost pressures, it said that Scottish service providers linked the increase to higher prices for fuel, timber and food, while goods producers attributed it to the depreciation of the pound.

Those cost pressures are still outstripping the historical average in line with the situation in England and Wales.

One economist commented: “The December return to growth in Scotland is welcome, but the overall improvement remains pretty marginal.”