Signs of hope for businesses despite lockdown misery

The lockdown measures continued to take an inevitable toll on the Scottish economy last month but businesses have signalled renewed optimism for activity levels over the year ahead, according to a report out today.

Malcolm Buchanan, chair of RBS’s Scotland board. Picture: Gary Baker.

The latest Royal Bank of Scotland (RBS) monthly PMI report shows the pace of contraction in business activity in May was slower than in April, but was still the second-fastest since data collection began in January 1998. The volume of new work won by businesses also continued to plummet.

Malcolm Buchanan, chair of RBS’s Scotland board, said the figures show conditions in the Scottish economy remain “extremely challenging”, with reductions in activity, new business and backlogs all outpacing those seen at the UK level.

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“Although data indicates that the downturn has bottomed out, the pandemic has dealt an unprecedented blow to the economy,” he said. The seasonally adjusted headline business activity index posted 21.1 in May, rising from April’s low of 10.7 but still indicating a rapid contraction in private sector activity.

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The drop in order book volumes was again sharper in services, although both manufacturers and service providers recorded a softer decline than in April.However, with signs of lockdown restrictions easing, the report found firms are becoming more optimistic about future prospects.

The report’s future output index posted above the no-change mark for the first time since February, with panellists linking optimism to looser lockdown restrictions and hopes of an economic recovery. However, sentiment remained among the lowest on record and only Northern Ireland registered a weaker outlook than Scotland.

The latest report shows that firms in Scotland reduced workforce numbers again in May, extending the current sequence of job cuts to four months. The rate of job shedding was the second-quickest on record, despite easing from April.

A lack of new business meant that Scottish firms continued to focus more resources on the completion of outstanding work in May. The rate of backlog depletion slowed only slightly from April’s record and was the second-quickest seen since data collection began.

Buchanan said the figures highlighted further rapid declines in both activity and new business. “The rates of contraction softened from April’s records, but were still the second-quickest in over 22 years of data collection. With demand essentially frozen, companies continued to make substantial reductions to workforce numbers.”

Buchanan said with restrictions easing, sentiment for the year ahead returned to a positive footing as businesses look set to reopen and amid hopes of improved demand and economic recovery.”

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