SCOTLAND’S private sector economy slipped back into reverse last month, and inflationary pressures intensified, a key survey shows.
Bank of Scotland’s latest Purchasing Managers’ Index report shows both the manufacturing and services sectors north of the Border experienced contraction in February. It signals overall output of the Scottish private sector economy has fallen in two of the last three months.
The output index for Scotland fell from 50.3 in January to 49.5 last month on a seasonally adjusted basis, dropping below the level of 50 deemed to separate expansion from contraction. It was 49.4 in December.
Scotland’s manufacturing sector saw a sharp downturn in its fortunes between January and February, with a fall in its output index from 52.2 to 48.8 signalling a move from modest but significant expansion to contraction.
The survey also signals a sharp fall in new export orders for Scottish manufacturers in February, following a significant rise in January, in spite of the boost provided to the competitiveness of UK-based companies in overseas markets by sterling’s post-Brexit vote weakness. The fall in incoming export business for the sector last month was the sharpest since June 2017.
Bank of Scotland noted survey respondents had reported lower demand from South Africa and the Middle East.
Manufacturers north of the Border also saw a fall in their total new orders last month, following a relatively healthy increase in January.
The survey signals job creation in the Scottish manufacturing sector slowed in February to its weakest pace in 11 months.
Meanwhile, against a backdrop of higher commodity prices and raw material shortages, Scottish manufacturers raised their factory-gate prices last month at the fastest pace since April 2017.
The pace of contraction of Scottish services sector output accelerated marginally, but remained modest, in February. The services business activity index fell from 49.8 in January to 49.7 last month on a seasonally adjusted basis.
Scottish services sector employment fell marginally in February, having risen in January. This decline in services employment followed eight consecutive months of job creation in the sector.
The survey signals, overall, employment in the Scottish private sector economy was flat last month. It points to a marginal contraction in overall new business for Scottish companies.
Scottish services companies as a whole recorded a marginal increase in new business last month. They raised prices in February at the fastest pace since May 2017, as they reported higher fuel, food, metal and labour costs.
Bank of Scotland said: “Increased raw material costs was a principal reason cited by firms who marked up prices charged.”
Annual UK consumer prices index inflation has surged to three per cent, from 0.3 per cent in May 2016 ahead of the Brexit vote. Sterling’s post-Brexit vote weakness has increased the cost of imports.
The private sector’s return to contractionary territory in Scotland in February contrasts with a modest acceleration in expansion in the UK as a whole.
The UK output index rose from 53.5 in January to 54.5 last month on a seasonally adjusted basis. However, while significantly ahead of the corresponding reading in Scotland, this signals relatively modest growth.
Chris Williamson, chief business economist at IHS Markit, calculated the Chartered Institute of Procurement & Supply’s reports on February activity in the UK manufacturing, construction and services sectors together pointed to a quarterly growth rate of less than 0.4 per cent. This is well below trend.
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