'Solid' start to Q2 for Scottish private sector companies, but confidence muted, according to Royal Bank of Scotland report

Growth welcomed, but limited to service-providers, according to lender.

Last month saw the sharpest rise in Scottish private sector output for 12 months, spearheaded by the powerhouse service sector, according to a new report published today by Royal Bank of Scotland (RBS).

The NatWest-owned lender said its headline business activity index – which measures the month-on-month change in the combined output of the manufacturing and service sectors – ticked up slightly to 53.8 from 53.6 north of the Border in March. The lender said the upturn was “heavily” reliant on the service sector, where strong activity helped offset a steeper decline at manufacturers. “In fact, the divergence between the two sectors was among the largest recorded in over 26 years of data collection.”

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The trend in output reflected underlying demand conditions, with manufacturers posting another drop in new orders, while services firms reported a further rise in inflows of new work, according to the bank. A third consecutive monthly rise in new business was recorded across Scottish private sector firms, centred at service operators, which helped “mask the sharp and deepening downturn observed at manufacturers”.

Sentiment surrounding the outlook for private sector activity remained positive north of the Border, and firms were hopeful that increased demand conditions would support future expansions in activity, although the degree of confidence slipped to a five-month low and was historically muted. Moreover, Scotland was the least optimistic of all 12 monitored nations and regions.

Private sector companies across Scotland continued to raise their staffing levels in April, with expansions now noted for the 15th straight month. Moreover, the rate of job-creation quickened from March's six-month low and was solid overall.

Scottish firms recorded a 12th successive monthly decline in incomplete business at the start of the second quarter, amid a steeper decline at goods-producers, with falling inflows of new orders cited. Furthermore, there was a sharper rise in input prices during April, again led by the service sector, and anecdotal evidence linked higher costs to growing salaries, utilities, and raw material prices.

After registering the weakest rise in more than three years in March, the rate of output charge inflation strengthened “notably” in April, rising at the strongest pace in nine months, with firms linking this to higher cost burdens.

Services firms reported a further rise in inflows of new work, the report has found (file image). Picture: Scott Louden.Services firms reported a further rise in inflows of new work, the report has found (file image). Picture: Scott Louden.
Services firms reported a further rise in inflows of new work, the report has found (file image). Picture: Scott Louden.

Judith Cruickshank, chair of the Scotland board at RBS, said: "Scottish private sector companies signalled a solid start to the second quarter, with expansions now noted in each month of 2024. However, as has been the case since the current expansion in activity began, growth was limited to service-providers, while the manufacturing sector remained in contraction territory. Moreover, inflationary pressures also quickened notably, with service firms being the main reason behind the stickiness in prices and charges."

Looking at the UK as a whole, and in the wake of interest rates recently being held, and new GDP figures, RBS chief economist Sebastian Burnside commented: "Most areas of the UK are enjoying a revival in business activity, with growth even accelerating in most cases in April.” However, he added: "Slower increases in prices charged for goods and services in April will be music to the ears of policymakers, but they will be keeping their eyes firmly on these numbers going forward should the economy continue to pick up speed."

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