Bank of Scotland

Private sector growth quickens to fastest in three months

14 July 2014

June saw a rebound in private sector growth, the latest Bank of Scotland PMI report showed. Business activity rose at the fastest pace in three months as manufacturers and services firms alike recorded accelerated expansions in output. There was further good news on the employment front, with firms upping their rate of job creation to accommodate stronger inflows of new work. Elsewhere, June’s survey showed slight upticks in the rates of both input and output price inflation.

The headline seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services business activity – climbed to a three-month high of 55.9 in June, up solidly from May’s 13-month low of 54.0. Rates of growth in service sector business activity and goods production were both the fastest since March.

Underlying growth was a stronger inflow of new business at Scottish private sector companies. Anecdotal evidence highlighted the success of increased marketing efforts in driving new business growth. Meanwhile, new export orders at manufacturers stabilised in June, a relative positive after four successive months of declining international sales.   

Growth in business activity was further supported by progress on backlogs of work, the level of which decreased for the second straight month during June. 

Reflective of growth having regained some of the momentum lost earlier in the quarter, employment in Scotland’s private sector economy rose strongly during June, and at the second-fastest rate since the survey’s inception in 1998. Driven by both the manufacturing and service sectors, the speed of job creation was the most marked since February’s record high.

June data pointed to a pick-up in the rate of input price inflation, to the fastest since February. Salary increments was the main factor behind the increase in costs, according to panel member reports. 

Businesses raised their output prices to cover at least part of the burden of higher costs. The degree to which output prices increased in June was slightly more marked than in May, though only moderate and slower than the rate of cost inflation. Overall, inflationary pressures in Scotland remained notably higher than across the UK as a whole.

Donald MacRae, Chief Economist at Bank of Scotland, said: The PMI for June rebounded to 55.9 signalling the fastest pace of private sector growth for three months and extending the current run of expansion to 21 months.  Growth was evident across both manufacturing and services with business services leading the way.  After four months of decline, new export orders stabilised while levels of new business rose across the economy.  Employment growth was accompanied by rising salaries providing further evidence of increasing business confidence. The recovery in the Scottish economy is now firmly embedded.

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