Growth improves for manufacturers

However, although the rate of expansion accelerated slightly, it remained modest, as the Scottish services sector posted only marginal growth. And the survey signals private sector growth remained significantly slower in Scotland than in the UK as a whole.

The PMI report indicates a modest fall in employment in the private sector in Scotland for a second consecutive month. The employment index for Scotland came in at 49.6 in February, unchanged from January and adrift of a corresponding UK-wide reading of 52.4.

The headline output index for the Scottish private sector economy rose from 51.2 in January to 51.7 last month on a seasonally-adjusted basis, moving slightly further above the level of 50 deemed to separate expansion from contraction. It was well adrift of the UK-wide output index of 53.8. Growth of the private sector economy in the UK as a whole has slowed sharply over the last two months. The UK-wide output index was at 56.7 in December.

The manufacturing output index for Scotland rose from 55.8 in January to 57.3 last month – signalling the fastest expansion of this sector in 37 months and a growth rate well above the long-run historical average.

Manufacturers cited improved productivity and stronger underlying demand as key factors behind the acceleration of growth.

And manufacturers in Scotland were at their most confident in eight months about the prospects for higher output volumes on a 12-month view.

Firms attributed this optimism partly to an “upturn in the oil industry”, Bank of Scotland noted. This is likely to be viewed as an encouraging sign, given the oil and gas sector’s woes have been weighing heavily on the broader Scottish economy for a long time, although the North Sea continues to face major challenges.

Expansion into new markets was cited as another factor behind improved confidence among Scottish manufacturers about the prospects for output volumes.

However, the rate of growth of new orders for Scottish manufacturers slowed sharply between January and February. The new orders index dropped from 55.9 to 52.6. And new export orders contracted, ending a six-month period of growth of incoming business from overseas.

The Scottish manufacturing sector’s workforce grew modestly in February, after marginal contraction in January.

Driven by increased costs arising partly from sterling’s weakness in the wake of the Brexit vote, Scottish manufacturers raised factory gate prices at the fastest pace in 70 months.

The PMI report signals the Scottish services sector shed jobs in February at a slightly faster pace than in January, although the rate of decline of employment was modest.

The output index for services, which had with a reading of 50 signalled stagnation of this key sector of the Scottish economy in January, rose to 50.3 in February to signal marginal growth. But the rate of growth of incoming new business for the services sector slowed further. The new business index for services dropped from 51.4 to 50.5.

And the survey signalled a continuing surge in Scottish services companies’ costs, fuelled partly by the pound’s weakness.

Fraser Sime, a director in Bank of Scotland’s commercial banking division, said: “Scotland’s private sector businesses built on the solid start shown in the opening month of the year to record the fastest rate of output growth for 19 months. The upturn was driven by a strong performance in the manufacturing sector, where production increased at the fastest pace since January 2014. That said, the overall rise in activity was still only modest.”

He added: “The growth is weak in the context of historical data. Inflationary pressures remain substantial. With new business also growing at a weaker rate, firms will be wary that the upturn may soften.”