Bank of Scotland

Output growth reported at end of 2015

11 January 2016

Survey data for December indicated a return to expansion territory for Scotland’s private sector. The upturn was driven by a slight increase in new business, although the rate of growth was only marginal.

Staffing numbers contracted during December for the first time in five months. This was led by the manufacturing sector as service providers continued to add to headcounts. Despite growth in both output and new work, backlogs of work deteriorated further. Meanwhile, average cost burdens continued to climb, yet this did not prevent firms from cutting their output prices for another month.

The seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - scored 50.3 in December, up from 49.8 recorded in November. The latest figure signalled a fractional improvement in output in Scotland’s private sector. This rise was led by service providers, as manufacturers registered a further decline in production.

New business received by Scottish private sector companies increased during December. That said, the rate of growth was marginal. While the service sector reported a modest expansion in new work, manufacturing companies registered a solid contraction in incoming new orders.

Staffing numbers in Scotland’s private sector declined for the first time since July during December. However, the rate of job shedding was weak. Manufacturers linked falling employee numbers to necessary redundancies.

Scotland’s private sector indicated a further deterioration in outstanding business volumes in December. The latest decline extended the current sequence of backlog depletion to 12 successive months. There was evidence that a fall in work-in-hand reflected efforts to cut delayed projects.

Latest survey data highlighted a further increase in input costs in December, continuing the current sequence of price rises which started in January 1999. The rate of inflation was solid, but dampened by a drop in input prices at Scottish goods producers. Despite higher average cost burdens, output prices fell for the fifth month running. Moreover, the drop in charges was broad-based by sector.

Alasdair Gardner, Bank of Scotland Regional Managing Director Scotland - Commercial Banking, said, “Despite returning to expansion territory, Scottish manufacturers struggled to cope with a lack of new orders from both domestic and foreign markets. This acted as a brake on overall output growth. On a positive note, service providers showed signs of economic optimism, with headcounts and new business levels expanding. However, these improvements were marginal, and insufficient to propel the economy in a higher gear at the end of 2015.”

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