‘Unparalleled’ dive sees Scottish firms fare worse than UK - RBS report

Scottish businesses suffered an unparalleled downturn in activity last month and fared worse than the UK as a whole, according to a bleak report today

Large parts of the economy including retail and hospitality have been hammered by lockdown measures. Picture: John Devlin

The latest Royal Bank of Scotland (RBS) PMI report also showed that the service sector recorded a quicker decline than manufacturing, although both sectors saw the most marked reductions in activity on record as the full impact of lockdown measures was seen.

The headline business activity index – a measure of combined manufacturing and service sector output – fell from 29.7 in March to a fresh low of 10.7 in April, and signalled the most substantial contraction in private sector activity in the 22-year survey history. The combined drop in the index from February was a considerable 39.4 points.

Malcolm Buchanan, chair of RBS’s Scotland board, warned that although there is now some discussion of an exit plan from the current quarantine restrictions, ”it is unlikely that the economy will recover quickly from such a severe downturn”.

Unsurprisingly, private sector firms recorded a back-to-back reduction in total new business during April, with the rate of contraction also accelerating during the month.

The fall in Scotland was part of a wider UK trend in April. New business dropped at the quickest pace on record, although the fall was softer than that seen in Scotland.

The report also shows the impact on workforce numbers with the rate of job cuts in Scotland the quickest recorded in the 22-year history of the survey.

However, for the first time since January 1999, private sector firms in Scotland highlighted a reduction in input prices during April with lower fuel, oil and staff costs.

At the same time, average selling prices fell for the second month running, with the rate of reduction the quickest on record. According to survey respondents, the fall was due to a combination of lower costs and discounting as a result of efforts to attract clients.

The report also shows private sector firms in Scotland remain pessimistic regarding activity over the coming 12 months, although sentiment did pick up slightly from March’s low.

Buchanan said the latest data pointed to an unprecedented reduction in private sector activity,” he warned.

“Incoming new business declined at the most marked rate in over 22 years of data collection, with firms mentioning that demand both domestically and from abroad had collapsed. Unsurprisingly, the 12-month outlook for activity remained negative for the second month in a row, amid substantial uncertainty surrounding the economic fallout of the pandemic.”

The RBS PMI report is compiled by IHS Markit from responses to questionnaires sent to a panel of around 500 manufacturers and service providers.

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