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Private sector loses growth momentum

GROWTH of Scotland's private sector economy lost further momentum in November as the manufacturing sector slipped into reverse.

FUTURE: The Government hopes for growth in manufacturing to rebalance the economy. Picture: Martin Shields
FUTURE: The Government hopes for growth in manufacturing to rebalance the economy. Picture: Martin Shields

But firms have continued to add workers, suggesting that they have confidence in future demand.

The level of business activity in Scotland's private sector economy expanded last month but the pace continued to weaken from the recent peaks reach in August and September, according to Bank of Scotland data.

Growth in Scotland was also substantially slower than that seen in the UK as a whole.

Donald MacRae, chief economist at Bank of Scotland, said: "The recovery in the Scottish economy continued in November but at a slower pace than the survey-record levels of August and September."

He added: "New work continued to increase but at the slowest rate for six months.

"Both manufacturers and service providers added more staff demonstrating confidence for the future."

The Bank of Scotland's purchasing managers' index, which combines data from a range of industry surveys, dropped to a six-month low of 55.2 from 57.8 in October. Anything over 50 signals growth. The UK as a whole came in a 60.2.

The Government has hoped for the rapid growth of manufacturing to rebalance the economy away from excessive dependence on financial services following the banking crisis.

However, in Scotland last month the Bank of Scotland's data shows there was a very slight decline in output from the manufacturing sector in November, ending a run of growth that stretched back to April.

New orders to manufacturers continue to grow but expanded at their weakest rate for six months in November.

The dominant services sector continued to expand, taking its sequence of growth to 35 quarters. But the rate of business activity increased at the slowest rate since July after reaching a series record in September.

Bank of Scotland said in its report: "Financial services led the latest increase in business activity, with travel, tourism and leisure the worst performing sector for the second month in a row."

But in both the manufacturing and services sectors staffing levels continued to rise albeit at a slower rate. Jobs continued to be added faster in the services sector.

The challenges facing companies that are attempting to expand was revealed in a survey of 180 chief procurement officers around the world by accountant Deloitte.

It said that firms' procurement functions are under-prepared for moving from cost-cutting to growth.

While 88% of those surveyed said they met savings plans last year, it found that many are kept awake at night by how to maintain that level of performance over the next year.

James Gregson, head of sourcing and procurement at Deloitte UK, said: "Growth will still need to be funded, so cost management and cash releasing strategies will continue to prevail, but a shift to an expansionary agenda by businesses means procurement needs to introduce new suppliers and more innovative supplier incentive models."

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