Sharp rise in PMI suggests Scotland could avoid dreaded ‘double dip’

Scotland’s economy has pushed further back from “double dip” recession territory after the sharpest monthly rise in private sector employment since July 2007.

A key Bank of Scotland report, published today, also reveals that output grew at the quickest rate for a year during March.

The bank’s chief economist said the results suggested the beginning of a reverse in the slowdown seen at the end of last year. It raises the chances that Scotland avoided a fall back into recession in the opening quarter of 2012.

The report, which is based on the responses from 600 companies in both the manufacturing and service sectors, noted that the stronger growth was in part the result of a faster rise in incoming new business and sparked the rise in staffing numbers.

Overall, the purchasing managers’ index (PMI) for March rose from February’s 51.7 reading to 54.1, the sharpest increase in output for 12 months.

It also marks the 15th straight monthly increase in total private sector output. Readings above 50 signal an increase or improvement; those below that level indicate a decline or deterioration.

Donald MacRae, chief economist at Bank of Scotland, said: “March’s PMI rose at the fastest rate for a year, suggesting the private sector of the Scottish economy is beginning to reverse the slowdown experienced at the end of last year.

“The rise in new business orders and employment in both manufacturing and services is particularly welcome.

“Although growth in manufacturing output was modest, new export orders rose during the month, perhaps reflecting reducing concerns over the sovereign debt crisis in the eurozone.

“Prospects for avoiding a ‘double dip’ and a return to moderate growth in 2012 have improved.”

The report, which is produced by research group Markit Economics, found that growth had accelerated faster in service sector activity, with goods production increasing at a modest pace that was up only slightly since the previous survey period.

New business inflows also increased at a faster rate during March and service providers saw a stronger rise in incoming new work over the month.

Job creation accelerated and employment growth in Scotland was faster than the UK as a whole. Meanwhile, cost inflation was broadly unchanged since the previous survey and still slightly stronger than the UK-wide level.

Finance secretary John Swinney said the PMI report showed “positive signs” of economic recovery in the private sector, which accounts for roughly half of the Scottish economy. He said: “This government and our enterprise agencies are doing everything we can to support recovery, and to retain Scotland’s position as the most competitive environment for business in the UK.”

Business leaders last week called for further measures to sustain the economic recovery amid signs of a divide between the fortunes of Scotland’s manufacturing and service sectors.

The plea came as a poll of about 8,000 companies across the UK pointed to “encouraging” signs of growth.

However, in its quarterly economic survey, the British Chambers of Commerce also warned that the pace of recovery is still too slow. A geographic breakdown of the data suggested a twin-track recovery north of the Border.