Scottish business edges back into expansion in June

Scotland's private sector tentatively edged back into growth in June following two months of stagnation, with new business being the main driver, a new report out today shows.

Graham Blair, regional director, SME Banking Scotland. Picture: Julie Bull

It was the third successive month that new business expanded north of the Border, but the Bank of Scotland purchasing managers’ index (PMI) emphasised that growth was “slight”, with a decent manufacturing outturn compensating for a weak performance in the services sector.

The headline Bank of Scotland PMI measure of the month-on-month change in combined manufacturing and services output rose to 50.5 in June, after posting 49.9 in May. Any figure over 50 denotes expansion.

It is only the second time this has been the case in Scotland’s private sector so far in 2016.

“Price discounting was cited by Scottish goods producers as one of the main factors behind the increase in new orders during the month,” the report said. The new business index figure came in at 50.6 compared with 51.2 in May.

However, private sector firms continued to reduce their headcounts last month, extending the current rate of job shedding to seven consecutive months.

A small increase in the manufacturing workforce was outweighed by the services sector – ranging from banking and transport to hotels, pubs and IT – reducing headcounts.

The employment index figure for June was 49.7 compared with 49.5 in May. The report also said there was some “anecdotal evidence” that a further rise last month in input costs – raw materials etc – “reflected unfavourable exchange rate movements throughout the month”.

Sterling has slumped on the forex markets against the backdrop and in the aftermath of the UK’s European Union referendum on 23 June.

Graham Blair, regional director, SME Banking Scotland, said: “After two months of broadly stable business conditions, Scotland’s private sector experienced a slight upturn in June.

“Growth occurred at a slow pace, after a solid rise in manufacturing production was weighed down by an under-performing service sector. Regardless of this, June’s survey data was the strongest so far in 2016, which will be encouraging news for Scottish firms.”

The rise in total new work was broad-based across both manufacturers and service providers, the report said. But backlogs of work “continued to deteriorate” in June, it said. Scotland’s private sector businesses have reported falling levels of incomplete work in each of the past 18 months.

The report added that service providers reporting higher output “attributed this to a rise in new business, while firms registering a decline reflected upon economic uncertainty resulting from the EU referendum”.

It said Scottish firms lowered their output prices for the fourth time in the first half of 2016, but that the decline was marginal.