ACTIVTY in Scotland’s private business sector has declined for the first time in three months as the UK overall experienced its best performance since January.
Evidence of job losses has also emerged as a decline in the services sector offset a 16-month high in manufacturing output north of the Border, which comes as a weaker sterling helps exporters.
After a resilient response to the Brexit vote, the overall performance in Scotland in November led to the first contraction in output since August as companies contend with the additional challenge of absorbing increased costs and a reduction in new business.
The findings are revealed in the latest Bank of Scotland Purchasing Managers Index (PMI), which shows that combined manufacturing and services output slipped to 49.4 in November from 50.6 in October.
A score of 50 on the index separates growth from contraction relative to the previous month, and while the decline was described in the report as marginal, it comes as the UK figure improved to 55.2 from 54.7.
However, the latest Business Trends Report by accountancy firm BDO indicated a rise in output in Scotland. Its Output Index, which points to how businesses expect to perform in the coming three months, grew to 97.1 from 96.7 in November.
BDO said this suggested that the UK economy has stabilised, albeit “in a lower gear than it had been running at pre-EU referendum”.
The PMI, which is based on responses of 500 services and manufacturing companies, showed Scotland’s private sector had pushed its way back into growth in September and October following a summer of contraction, but the difference in output relative to the overall UK figure is now at its highest level since January, when both Scotland and the UK showed monthly growth.
The November index also points to the first reduction in workforce numbers in Scotland’s private sector since June. The index for employment in November was 49.5, reversing a four month trend of job creation. And while the rate of job decline was slight, the PMI noted that sector data signalled a broad-based reduction in staffing levels at both goods producers and service providers.
The UK employment index was 52.5, its highest level since March.
Nick Laird, regional managing director, Bank of Scotland Commercial Banking said: “With job cuts evident for the first time since June and input costs such as fuel prices, higher wages and foreign exchange rates increasing, companies will be looking for a pick-up in new business in the new year to help rejuvenate the sector.”
This latest PMI illustrated a moderate decline in the services sector as manufacturing output rose for the fourth month.
In the services sector, the rate of monthly contraction in business activity, at 48.5, was the fastest since January 2015 as businesses cited increased competition and continuing uncertainty over how and when the UK will exit the European Union.
Manufacturing output increased to 52.8 but still saw a slight reduction in workforce numbers, with evidence that lower headcounts reflected improved production methods.
These trends are reflected in the BDO Optimism index, which revealed that the optimism sub-index for the services industry continues to slump while in manufacturing, there has been an uptick in optimism.
The overall PMI for November showed that companies continued to work through their outstanding business, extending a trend which has been evident in each month for almost two years.
Firms also reported a further sharp increase in input prices as they contented with strong inflation in a historical context.
Meanwhile, PMI figures show companies raised their output charges for the fourth month in a row, but at a lower rate than in October.
BDO’s inflation index, now sits at 103.6, ahead of the long-running trend, which could suggest that inflation will rise further as firms start to feel the effect of higher input costs. The BDO report also said rising inflation could markedly dent consumer spending in 2017.
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