Bank of Scotland

PMI signals easing of private sector growth

09 June 2014

May’s Bank of Scotland PMI report indicated further solid expansion of private sector output and new business north of the border, although the data pointed to a loss of growth momentum since April. Businesses expanded their capacity to meet increased demand by creating more jobs, with greater resources helping lead to a fall in backlogs for the first time in a year. Inflationary pressures meanwhile softened slightly, as input and output prices both rose at slower rates.

At 54.0 in May, seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – showed a solid increase in private sector output. However, down from April’s 54.8 and the lowest reading since April 2013, the headline index showed a further loss of growth momentum from the rapid pace of expansion seen at the start of the year. Both manufacturers and services firms recorded slower increases in output than in April. 

The number of new business wins in the Scottish private sector economy continued to rise during May. The boost to orders came primarily from stronger domestic demand, according to May’s survey, with the level of new export business at manufacturers falling solidly and to the greatest extent for five months.   

Growth in private sector output and new business continued to have a positive impact on the labour market, with May data pointing to net job creation for the eighteenth straight month. The rate of increase in employment was solid, albeit the slowest in four months and well below the UK-wide average. 

Consistent with the upturn in activity north of the border having moderated somewhat, May saw the amount of outstanding business at firms decrease for the first time in a year. That said, the reduction in backlogs was only fractional, and to some extent also a reflection of increased staffing capacity. 

May’s survey meanwhile highlighted a reduction in cost pressures facing businesses as input price inflation eased to the second-lowest in nearly two years, and was only slightly faster than March’s four-and-a-half year low. Service providers faced the sharper increase in cost burdens, citing the impact of rising staff remuneration.

The rate of output price inflation in Scotland was also slightly slower than in the prior month, but faster than the UK average nonetheless.

Donald MacRae, Chief Economist at Bank of Scotland, said: May’s PMI report signalled further solid expansion in output and new business in the month. Both manufacturing and service sectors recorded growth and rising employment while inflationary pressures eased with both input and output prices rising at slower rates. The challenge of exporting is shown by the fourth consecutive monthly fall this year in new export orders. The recovery in the Scottish economy continues but the pace has eased slightly.

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