Bank of Scotland

Marginal growth in private sector activity in November

10 December 2012

  • Growth slows amid continuing weakness in new work
  • Employment stable for third straight month
  • Input price inflation remains strong

The latest Bank of Scotland PMI report showed that operating conditions for businesses north of the border remained challenging in November. Output levels continued to rise only marginally, owing to further weakness in new business inflows. Employment was unchanged over the month, with data highlighting a degree of excess capacity within the economy. Cost pressures faced by businesses remained elevated, leading to a squeeze on margins as charges stagnated amid the weakening trend in demand.

November saw the Bank of Scotland PMI fall from 50.7 in October to 50.3, signalling only a marginal increase in the combined output of Scottish manufacturers and service providers in the penultimate month of the year. That was in line with the trend recorded across the UK economy as a whole.

Behind the slowdown in output growth in Scotland was a further drop in the level of new work placed with businesses. The latest decrease was the fifth in as many months, which anecdotal evidence linked to weakening demand in domestic and international markets alike. Indeed, manufacturers recorded another (albeit weaker) decrease in new export orders.

As was the case in the previous two months, the level of employment at Scottish private sector businesses remained unchanged during November. However, unlike in September and October when hiring at services firms offset job losses in manufacturing, both sectors recorded static staffing numbers in the latest survey period.

There was evidence of spare capacity at Scottish businesses in November, with backlogs of work reduced for a fifteenth straight month. The rate of decline was little-changed from October’s modest pace, however, and weaker than that seen across the UK as whole.

Average input prices faced by Scottish firms continued to rise at a marked rate in November, in part reflecting the increased cost of oil and related products. The pace inflation was slightly faster than the historical trend, and well in excess of that registered at the UK level.

Despite the considerable rise in cost burdens, output prices in Scotland’s private sector economy increased only marginally on average. The increase was the weakest in the current four-month sequence.

Donald MacRae, Chief Economist at Bank of Scotland, said: "The private sector of the Scottish economy grew marginally in November with growth in the service sector offsetting a fall in manufacturing output. The Scottish economy is showing the strains of maintaining growth momentum against a background of weak domestic and international demand. Despite this challenging environment, employment was maintained in the month.”

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