Scotland's private sector upturn flags return to growth

Scotland's private sector output grew for the first time in three months in September to reach a 14-month high, according to a report published today.

Output in Scotland's private sector economy hit a 14-month high in September. Picture: Toby Williams

The Bank of Scotland (BoS) purchasing managers’ index (PMI), which tracks the month-on-month changes in combined manufacturing and services output, rose to 51.2 last month, up from 49.1 in August and ending a two-month period of contraction.

It came amid higher levels of employment, and new business growing at its fastest pace for 13 months, but escalating input costs squeezing margins.

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Nick Laird, regional managing director at BoS commercial banking, said: “The improvement in the economy was equally shared between service-providers and manufacturers, who both registered modest increases in output during the month. Demand for Scottish goods and services also rose, highlighted by a rise in new business.”

Service output north of the Border returned to growth territory in September, ending a four-month sequence of decline, while manufacturing output increased for the second month in a row.

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Laird added: “On another note, firms faced the fastest increase in input costs for 33 months, putting pressures on firms’ margins as we approach the end of the year.”

Scotland Office minister Andrew Dunlop described the PMI figures as “good news” for the country, but said that with the UK “as a whole performing more strongly than Scotland”, the Scottish Government must “start talking Scotland up and focusing on how best to use their new powers to support the Scottish economy”.

He added: “These numbers show there are real opportunities for Scotland’s economy that must not be wasted.”

Meanwhile, data also published today by accountants and business advisers BDO revealed firms adopting an “optimistic and pragmatic mindset” after the Brexit vote.

The BDO optimism index, which reflects how companies expect their order books to develop in six months, has reached its highest level in more than a year at 91.3 in manufacturing. This was exceeded by the services sector, which registered 101.1.

A separate study also published today by accountancy giant EY found that the value of UK mergers and acquisitions (M&A) in the third quarter increased to $78.3 billion (£63bn), up from $25.7bn in the prior quarter, despite Brexit uncertainty.

Ally Scott, EY partner and head of transaction advisory Services in Scotland, said firm are getting used to continued low growth and interest rates, plus cheap debt.

“For M&A activity in Scotland this means there is an increasing number of businesses seeking funding for their growth plans. Overseas investors are interested in Scotland’s innovative businesses particularly in the fintech and Life Sciences sectors where we can expect most M&A activity to take place in the year ahead.”