SCOTLAND’S private-sector economy contracted for a third consecutive month in February as manufacturing output fell sharply, while companies’ optimism about growth prospects fell to its weakest since autumn 2016 as Brexit fears dominated, a survey shows.
Royal Bank of Scotland’s latest purchasing managers’ index (PMI) report shows the decline in private sector output north of the Border last month contrasted with an albeit-modest rise in the UK as a whole.
Scotland was one of only three of the 12 nations and regions of the UK to see its private-sector economy contract in February. North-east England and London also saw a decline.
The PMI business activity index for Scotland edged up from 49.2 in January to 49.4 last month on a seasonally adjusted basis, remaining below the level of 50 deemed to separate expansion from contraction while signalling a slightly slower decline in output. The rate of decline in activity during the three months in which the Scottish private-sector economy has been in reverse is modest.
The fall in private-sector output in Scotland in February was driven by the manufacturing sector’s weakness. The services sector north of the Border recorded a modest rise in activity last month.
Scottish companies’ optimism about the prospects for increased business activity on a 12-month time horizon fell to its weakest since October 2016. Optimism in Scotland was second-weakest out of the 12 UK nations and regions, with only Northern Ireland more pessimistic about prospects.
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As well as Brexit, Scottish companies flagged the impact of concerns about the domestic economy on optimism.
Employment growth in Scotland’s private-sector economy slowed in February, and was only marginal. However, the employment index for Scotland last month, at 50.2, was bettered only by north-west England and the West Midlands. The survey signals marginal increases in employment in both the Scottish manufacturing and services sectors last month.
Scottish manufacturers last month recorded their sharpest fall in new orders for nearly six-and-a-half years, according to the survey. Services companies north of the Border, overall, recorded a slight rise in new orders in February. Overall, new orders in Scotland’s private-sector economy have now fallen for three straight months, with the rate of decline accelerating in February.
Malcolm Buchanan, who chairs the Scotland board of Royal Bank, said: “Latest PMI data for Scotland portrayed a further downbeat assessment of the economy north of the Border, with the two key business health gauges of output and new orders both in contraction territory. Indeed, relative to the other 11 monitored areas of the UK, Scotland was among the underperformers.”
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He added: “Weighing on the economic climate in Scotland was uncertainty, particularly relating to Brexit and the knock-on effects this will have on client confidence. Business optimism subsequently dwindled to a 28-month low in February. Caution was also signalled by employment data.”
Mr Buchanan noted the slight growth in employment in Scotland’s private sector economy in February was below the long-run trend.
Of the 12 UK nations and regions, Wales moved to the top of the rankings for business activity growth.
A survey published last month by Scottish Chambers of Commerce, with the University of Strathclyde’s Fraser of Allander Institute, showed the confidence of manufacturers in Scotland fell at the fastest pace since 2012 in the fourth quarter of 2018.
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