Bank of Scotland

Output in Scotland’s private sector contracts during February

14 March 2016

Scotland’s private sector slipped into contraction during February, according to latest survey data. Output levels deteriorated for the first time in three months, driven by a marginal decline in new order levels. Meanwhile, employee numbers continued to drop as firms reported a lower volume of incomplete work. Finally, a faster drop in average tariffs was reported despite a rise in input prices.

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 49.2 in February. Down from 50.3 in January, the latest reading pointed to a slight downturn in output in the Scottish private sector. Moreover, the decline in business activity was the first reported for three months.

New work received by private sector companies in Scotland contracted during February, ending an 11-month sequence of growth. Although service providers recorded broadly unchanged levels of incoming new work since January, Scottish manufacturers reported a substantial decline.     

Workforce numbers continued to slide in the private sector of Scotland in February. That said, the rate of job shedding was slight and eased since January. The fall in staffing levels was driven by service providers, while manufacturers reported a fractional increase in employee numbers.

Meanwhile, private sector companies reported ongoing spare capacity in Scotland’s economy last month. The rate at which backlogs of work deteriorated was substantial and accelerated to the sharpest since February 2015. Anecdotal evidence linked lower levels of work-in-hand to the current downturn in the Aberdeen region.

Latest survey data for February highlighted an increase in input costs faced by the private sector of Scotland. However, the rate of inflation was modest and weak in the context of historical data. While service sector companies recorded a solid increase in input prices, manufacturers faced lower average cost burdens.

Despite being faced with higher costs, Scotland’s private sector firms lowered their output prices during February, continuing a trend which began in August last year. While goods producers lowered their average tariffs at the quickest pace in the series history, the decline was more muted in the service sector.

Alasdair Gardner, Bank of Scotland Regional Managing Director Scotland - Commercial Banking, said, “The downturns in the Aberdeen region and the oil and gas sector negatively impacted the Scottish economy during February, as firms struggled to cope with lower incoming new order levels and deteriorating volumes of incomplete work.The drop in business activity and the slide in workforce numbers also signals a challenging few months ahead for the region.”

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