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Manufacturing sector shows signs of growth

SCOTLAND'S manufacturing and services sectors are both growing strongly, according to the latest Bank of Scotland figures, but falling export orders cast further doubt on the success of economic rebalancing.

SPARKS FLYING: March figures show that growth was broad-based across manufacturing and services.
SPARKS FLYING: March figures show that growth was broad-based across manufacturing and services.

Scotland's private sector economy ended the opening quarter of 2014 with another strong month of growth, according to the Bank of Scotland Purchasing Managers' Index report for March.

But output growth in Scotland continues to lag most parts of England.

Donald MacRae, chief economist at Bank of Scotland, said: "The March PMI signalled further strong growth of business activity across both manufacturing and service sectors.

"Not only did the level of new orders increase but employment rose for the sixteenth month in a row, while cost pressures eased.

"New export orders fell for the second consecutive month illustrating the challenge of improving our trade performance.

"The Scottish economy has added another month of expansion further embedding the growing recovery."

At 56.4, up slightly from February's mark of 56.2, the seasonally adjusted Bank of Scotland PMI signalled further strong growth of business activity in March.

A reading of more than 50 points indicates growth.

Growth was broad-based across manufacturing and services in March.

But the PMI reading for Scotland continued to lag that of the UK as a whole, which dipped to 57.6 for March against 58.2 in February.

All English regions, bar the North West and Yorkshire, produced a stronger increase in economic growth than Scotland, according to data published by Bank of Scotland's sister bank Lloyds. The list was topped by London with an unchanged PMI reading of 59.5.

The PMI reading for Wales was a record 60.5.

In Scotland, business activity in Scotland's dominant service sector remained strong at the end of the first quarter although its PMI reading slipped from 57.2 to 56.5, the lowest mark for the sector in 2014 to date. In all, 34.8% of firms reported higher activity in March against the month before, compared to 12.4% that reported a fall.

March's increase in activity, for the 39th successive month, led to another rise in hiring.

Some 14% of firms in the services sector reported adding to their workforce against 5.3% cutting employee numbers, while the balance held numbers steady.

The manufacturing sector, which has had a tougher time including a contraction in activity as recently as November, had a healthy PMI reading of 56.1, well ahead of the modest 52.2 recorded for February. The Bank said that factory production has now increased in 11 of the past 12 months.

Hiring accelerated in the sector to the strongest rate in the history of the PMI series dating back to 1998 with 17.8% of firms reported adding to employee numbers.

Many of those hiring reported adding temporary and part-time staff to their workforces.

Placing pressure on firms to expand staff capacity was a faster increase in backlogs of work, the most marked in 2014 so far.

March's increase in business activity was underpinned by another solid increase in the level of incoming new work, which panel members attributed to generally healthier business conditions and improved confidence. Bank of Scotland said firms had mentioned inflows of new work being boosted by growth in the housing market.

New export orders at manufacturers declined for a second straight month, however. They have fallen in four of the last five months. Bank of Scotland said that firms had highlighted a drop in business from Asia.

It had been hoped that following the financial crisis, improved exports would rebalance the economy away from reliance on financial services and consumer spending.

Cabinet Secretary for Finance John Swinney said: "We warmly welcome these figures which indicate Scottish private sector activity expanded for the 18th consecutive month.

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