Scotland’s private sector economy contracted sharply in October, posting its worst performance since last November, but it recorded the fastest employment growth among the 12 UK nations and regions, a key survey shows.
The business activity index for the private sector economy north of the Border in Royal Bank of Scotland’s latest purchasing managers’ index report fell from 49.3 in September to 46.5 in October on a seasonally adjusted basis. This took the index, which measures combined manufacturing and services activity, further below the level of 50 deemed to separate expansion from contraction.
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And the latest reading signalled that Scotland’s private sector economy recorded a sharper decline in output than the UK as a whole last month.
Only London, the West Midlands and the south-west of England recorded growth in October. Yorkshire and Humber, south-east England, Wales, and the north-east of England all recorded steeper declines in business activity than Scotland last month.
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Royal Bank said of the situation in Scotland: “Worsening underlying demand conditions and the cost of living crisis were said to have contributed towards the latest fall in output.”
It observed that Scottish private sector firms had increased their workforce numbers overall in October in spite of “souring” business conditions.
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The rate of job creation in Scotland's private sector economy in October was the fastest in five months. and the strongest in any of the UK nations and regions.
Royal Bank said: “The uptick was spurred by stronger growth in services employment and a fresh rise in [staff] across manufacturers. Firms reported successful recruitment of suitably skilled staff and the replacement of voluntary leavers.”
It added that, although the future activity index for Scotland was above the neutral 50 mark to indicate confidence around output expectations for the year ahead across Scotland's private sector in October, “the degree of optimism remained historically subdued and even weakened fractionally since September”.
Royal Bank declared: “Brexit, the ongoing war in Ukraine, rising energy prices and the current slowdown in the economy all heavily weighed on expectations.”
Of the 12 nations and regions of the UK, only Northern Ireland and the north-east of England recorded a weaker outlook than Scotland, the bank noted.
Judith Cruickshank, who chairs Royal Bank’s Scotland board, said: "With demand taking a step back over the last couple of months, the Scottish private sector displayed further weakness at the start of the final quarter.
“Spurred by sharper declines across both the manufacturing and services sector, business activity dropped at an accelerated pace in October. The downturn was the most pronounced in 11 months.”
She added: “Nonetheless, waning demand helped to assuage inflationary pressures, which were much weaker than this time last year. That said, rising costs for raw materials and renewed pressure from rising global prices meant that cost burdens, and in turn selling prices, still rose at historically elevated rates. However, employment trends remained resilient, with workforce numbers rising at the quickest pace in five months."
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