Scottish private sector serves up faster growth in activity in June, boosted by services firms, says RBS

The Scottish private sector last month indicated a solid and quicker expansion in activity, although this has prompted concerns that services and manufacturing will experience diverging fortunes, according to the latest purchasing managers’ index (PMI) data from Royal Bank of Scotland (RBS).

The NatWest-owned lender said the seasonally adjusted Scotland composite output index came in at 53.2 in June, up from 50.7 in May, extending the current run of increases to five successive months and at a clip above the long-run survey average. The bank added that the upturn north of the Border also surpassed that seen at the UK level.

Growth of new business also quickened during the month, the fifth such increase in a row, accelerated by a faster increase at services providers, and panellists noted that greater demand and a general market improvement helped drive the upturn, while manufacturing new orders fell at a slower rate. Additionally, a further fall in backlogs was reported across Scotland during June.

Turning to prices, despite remaining historically sharp, inflationary pressures showed further signs of easing from the highs seen in the previous two years, and the respective seasonally adjusted index has ticked down in six of the last seven survey periods, printing a 25-month low in June, RBS added.

Growth of new business quickened during the month, accelerated by a faster increase at services providers, the report has found. Picture: Getty Images/iStockphoto.

In line with easing price pressures, charges levied for the provision of goods and services also rose at a slower rate across Scotland in June. The pace of output charge inflation was the second-softest in 26 months, but remained historically elevated, and companies bumped price tags to cover increasing costs, the report found.

Scottish firms also registered a fifth successive monthly rise in employment last month. New projects and contracts encouraged firms to raise their payroll numbers, anecdotal evidence suggested, and the pace of job creation eased to a four-month low, however, amid softer expansions across both the manufacturing and services sectors.

Outlook

RBS also said that, looking ahead, the Scottish private sector remained largely upbeat at the end of the second quarter, expecting growth in business, sales, and the launch of new products, although confidence dipped to a five-month low, running below the long-run average.

Judith Cruickshank, chair of the Scotland board at RBS, said: "The Scottish private sector signalled a stronger performance midway through the year. The upturn was largely supported by a quicker expansion across the services sector, while manufacturing continued to exhibit weakness despite registering a slight increase in production. The diverging trends between the two sectors are a concern as dependence on services grows.”

Sebastian Burnside, chief economist at RBS, added: “There were some positive takeaways in the latest survey data, including a broad-based easing of price pressures. All areas recorded a slower rise in business costs in June, but in some cases, particularly in London and Scotland, the rates of input price inflation remained historically elevated due in large part to growing wage bills. Tight labour market conditions look likely to persist for the time being, with nearly all regions recording an increase in employment in June, which means underlying price pressures could stay higher for longer too."