Scottish firms battling fastest cost rises on record, says RBS

Scottish businesses are battling the fastest cost rises on record as energy bills and raw material prices continue to spike.

The latest Royal Bank of Scotland (RBS) purchasing managers’ index (PMI) report for February recorded the steepest cost inflation in the survey’s history, with firms being forced to raise their own prices at record rates.

However, the report shows that businesses saw output accelerate to the fastest rate for three months. The seasonally adjusted headline business activity index – a measure of combined manufacturing and service sector output – rose to 55.5 in February, from 53.7 in January.

At the sector level, manufacturing output returned to growth, while services activity rose at a quicker pace. Meanwhile, the rate of increase in new business accelerated to a three-month high and was sharp overall. According to panellists, the easing of restrictions had led to stronger client demand.

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Malcolm Buchanan, chair of RBS’ Scotland board, said: “Business activity across Scotland's private sector rose at the strongest pace for three months during February, as demand strengthened solidly amid the scaling back of Covid-19 restrictions. Manufacturing production rebounded, while Scottish service-providers registered a faster upturn in activity.

"That said, the stronger performance was dampened slightly by unprecedented inflationary pressures in February. Firms continued to face surging energy, fuel, material and staff costs, which pushed the rate of cost inflation to a survey peak, and subsequently raised their own charges at a record pace.”

The rate of expansion in Scotland continued to lag the UK-wide trend. Across the 12 monitored UK areas, only the North-east saw a slower upturn in new business than Scotland during February.

Malcolm Buchanan, chair of RBS’ Scotland board, said Scottish firms were facing surging costs across the board. Picture: Gary Baker.

Despite the cost challenges, business confidence at Scottish companies improved further in February. The level of sentiment was the strongest since last July and the ninth highest on record. Optimism was driven by hopes of a strong rebound following the easing of Covid-19 restrictions.

Firms also recorded a further increase in staffing levels, stretching the current sequence of hiring to nearly a year, according to the report, which is compiled by IHS Markit from responses to questionnaires sent to a panel of around 500 manufacturers and service-providers.

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