'˜Tentative upturn' for growth but inflation bites

There was a 'tentative upturn' in Scottish private sector growth last month but business confidence slipped to a six-month low, a key survey revealed today.

The Bank of Scotland report revealed that growth was being driven by Scotland's manufacturing sector. Picture: Andrew Milligan/PA Wire

The latest Bank of Scotland regional purchasing managers’ index (PMI) also raised fresh concerns over inflation, with input cost pressures among businesses accelerating last month, leading to a “marked rise” in charges.

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Overall, the private sector – accounting for about half of Scotland’s economy – made a positive start to the second quarter, seeing growth pick up slightly from the “relative stagnation” experienced in the preceding survey.

The modest upturn was driven by the manufacturing sector, which offset shrinking services output.

The seasonally-adjusted headline index rose to 50.6 in April from March’s four-month low of 50.1, with any reading above 50 indicating an increase or improvement. However, the rate of growth signalled in the latest survey remained below the historical series average since January 1998.

Fraser Sime, regional director at Bank of Scotland commercial banking, said: “April’s PMI signalled a tentative upturn in Scottish private sector growth, with both output and employment increasing at faster rates.”

He added: “The latest survey’s results were driven by a strong manufacturing sector, which moved up a gear in April. There was good news all round from steep production growth, to solid job creation and a further easing of cost pressures.

“Meanwhile, the service sector marred April’s PMI score as business activity in the sector shrunk for the second month running. A faster rise in new orders bodes well, though continued growth in the second quarter remains heavily dependent on the relatively stronger manufacturing sector.”

Pricing pressures are said to have remained “sharp” in April as businesses grappled with the effects of the Brexit-buffeted pound. Input price inflation was higher than the UK average for the first time in four months.

Respondents noted rising raw material costs and wage pressures as key factors. Bank of Scotland said that anecdotal evidence pointed to companies then passing on part of the burden of increased costs to customers, as corroborated by a marked rise in output charges last month.

The report comes ahead of official figures tomorrow that are expected to show the consumer prices index (CPI) measure of inflation hitting 2.6 per cent in April – the highest rate since September 2013.

It would mean the squeeze on consumer spending continued last month following a temporary respite in February and March when the CPI paused at 2.3 per cent.

The Bank of Scotland PMI is produced by IHS Markit and features survey data collected from a panel of around 500 companies based in Scotland and operating in the manufacturing and service sectors.