Scottish economy opens 2013 in growth, says bank report

City Editor

Monday 11 March 2013

The health of the Scottish economy improved further in February, according to Bank of Scotland research, but with the manufacturing sector continuing to contract it appears a long-awaited rebalancing has yet to get going.

The bank’s purchasing managers’ index (PMI) shows the Scottish economy grew for the fifth consecutive month in February and at a slightly accelerated rate compared to January.

Donald MacRae, chief economist at Bank of Scotland, said: “These results provide further evidence that the Scottish economy is avoiding a “triple dip” (recession) and has started 2013 in growth mode.”

The Scottish economy grew by 0.6% in the third quarter of last year, the most recent period for which data is available, suggesting it lagged the UK as a whole. But Scotland is expected to have outperformed in the final three months of 2012, when the UK economy contracted, due to a lack of a boost from the Olympics in the previous quarter. The Bank of Scotland survey shows there is still a divide between Scotland’s dominant service sector, which posted its sharpest increase in activity since April, and manufacturing, which has recorded an eight-month sequence of output decline. There had been hopes that in the wake of the credit crunch manufacturers, hitherto overshadowed by financial services, would drive the country’s economic recovery by seeking opportunities to sell overseas. But despite a large devaluation in sterling, the Bank of Scotland figures show factories are continuing to struggle to get orders. New export orders did rise in February after a slight decline in January in their strongest performance since May 2012. But Bank of Scotland said this remained “only modest”. Overall, new orders for manufacturing were very slightly up. Meanwhile, as employment increased very slightly last month, in line with the growth registered in January, manufacturers led the way in job creation. While only 10.6% of manufacturers said they had added roles, this compares to a sharply reduced 6% who said they were cutting and comes after a six month spell of job shedding in the sector. While levels of new business rose for the third month in the row, backlogs of work began depleting after entering positive territory in January. Mr MacRae said: “February’s PMI rose to an eight-month high signalling continuing improvement in output and business activity during the month. “The manufacturing sector recorded a modest rise in employment while services maintained job numbers. The increase in new orders both in the domestic economy and for exports is particularly welcome.” Figures from accountancy firm BOD also suggest an improvement in economic conditions although businesses remain gloomy. Its survey of business confidence across the UK found confidence had improved from a 21-year low recorded last month. In spite of the rise in optimism, the overall picture is bleak, with BDO’s optimism index well below the 95 mark which means growth, as it has been since May 2012. In addition, BDO’s output index, which predicts short-run turnover expectations, saw a fall from 92.3 last month to 92.1, suggesting conditions will remain tough. In particular, the services sector, which accounts for 75% of UK economic output, continues to struggle, with a reading of 91.5, significantly below the 95 point mark which indicates growth. The accountant called on the Bank of England to raise its quantitative easing programme designed to inject cash into the economy. Chancellor George Osborne is expected to outline measures designed to kick-start growth in his Budget on March 20 but the Government is thought unlikely to deviate from its overall cost-cutting plans.

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Scottish economy opens 2013 in growth, says bank report

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