Scottish economy returns to growth but factories drag

Scotland’s private sector economy bounced back to growth territory after a summer slowdown, a key report today reveals, though manufacturing remains in the slow lane.

Growth was mainly driven by the service sector. Picture: TSPL

The latest Bank of Scotland purchasing managers index (PMI) found that activity in the private sector, which accounts for just over half of the economy, expanded and volumes of new business stabilised in October after a dip the previous month.

The number of employees at private-sector companies in Scotland also rose for the third month in a row, although the job creation rate eased.

Growth was mainly driven by the service sector, with manufacturing production little-changed since the month before.

The report’s seasonally adjusted headline index – a single-figure measure of the month-on-month change in combined manufacturing and services output – rose to 50.9 in October, from 49 in September. Any reading above 50 denotes growth.

Donald MacRae, chief economist at Bank of Scotland, said: “Output increased modestly in services and marginally in manufacturing. These results confirm the summer slowdown in the Scottish economy has been arrested, giving slow growth rather than no growth going into the third quarter of the year.”

Workforce numbers at manufacturing companies fell for the first time in four months, although the rate of decrease was marginal.

The latest Scottish PMI is released as a separate report suggests that an economic imbalance looms after a fall in manufacturing optimism.

Accountancy firm BDO said that as the prospects for the services and manufacturing industries continue to diverge, the UK government’s plans to rebalance the UK economy are “increasingly at risk”.

Publishing its latest Business Trends Report, BDO said its optimism index – which predicts growth six months ahead – remains above its long-term trend at 101.9, indicating that businesses expect their order books to continue to grow strongly.

However, this is being driven by the buoyant services sector, masking “serious concerns” among manufacturers, whose optimism reading is deep within negative territory at 90.2.

Martin Gill, head of BDO in Scotland, said: “These figures show that the UK needs to act now to support our manufacturing industry..

“The government’s plans to encourage a more balanced economy are clearly right, but need to be accompanied by far more action. For instance, incentives to invest and plan for future success should be increased significantly.”

Meanwhile, the CBI warned that a “gloomier” global outlook will hit economic growth in the UK next year. It announced a “modest” downgrade in its forecast for this year, saying it expects the economy to grow by 2.4 per cent, compared to an earlier prediction of 2.6 per cent, and by 2.6 per cent next year, down from 2.8 per cent.