Scotland posts fastest growth in seven months during June

Malcolm Buchanan
Malcolm Buchanan

According to the latest Royal Bank of Scotland PMI (Purchasing Managers’ Index), Scotland was among the top-performing parts of the UK during June, as activity growth was reinstated following a slight drop in May.

Supporting the upturn were greater inflows of new business, however there were some signs of underlying fragility within the Scottish economy. Job creation slowed to a fractional pace, selling price inflation eased and business confidence remained historically weak.

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index – a measure of combined manufacturing and service sector output – rose to 51.3 in June, up from 48.9 in May, signalling a renewed rise in private sector output. For the second quarter as a whole, the headline index averaged 50.4 and was indicative of slight growth as expansions in June and April offset May’s mild contraction.

However, as has been the case across 2019 so far, manufacturing weakness carried on into June, with services activity being the driven force behind the latest upturn. Despite this, output growth in Scotland was the joint third- strongest of all 12 monitored areas of the UK, contrasting with a downturn for the UK overall.

New orders picked up at the end of the second quarter in Scotland amid reports of improved marketing and new project wins. Split by sector, survey data revealed that new business inflows were focused within the services economy, as manufacturing demand fell for a tenth successive month. Nevertheless, as was the case with output, overall sales growth in Scotland during June compared with reduced order book volumes at the UK level.

Despite June’s up-tick in new work – which was the strongest in seven months – order book volumes have been stable on average across 2019 so far. Scottish private sector firms were still able to clear outstanding business during the latest survey period, extending the current period of backlog depletion that commenced last October.

Meanwhile, the rate of job creation slowed for the second consecutive month in Scotland during June, but nonetheless rounded off a solid quarter of hiring on average.

Inflationary pressures softened during the latest survey period, but unfavourable exchange rate variation and rising staffing costs kept overall input costs rising above the long-run average rate. Nevertheless, selling price inflation eased across both manufacturing and service sectors during June. The overall rate of output charge inflation eased to a three-month low.

Lastly, evidence that political and economic uncertainty continued to weigh on sentiment was made apparent by business confidence in Scotland remaining historically subdued in June and below the UK average for a sixth successive month.

Malcolm Buchanan, Chair, Scotland Board, Royal Bank of Scotland, commented:

“Scotland was a bright spot in an otherwise disappointing month for the UK overall in June. Out of the 12 monitored parts of the UK, Scotland was the fastest -growing area for new business and joint third-strongest for output.

“However, caution remains as growth was only modest in June, with the second quarter average of the headline Business Activity Index indicative of only mild expansion. Firms continued to clear backlogs of work, suggesting that current inflows of new work are yet to put a strain on capacities. Furthermore, the rate of employment growth also slowed for a second successive month.

“A murky outlook towards the future persisted as panel comments suggest political and economic uncertainty continue to weigh on sentiment. With business confidence remaining historically subdued in June, as well as employment growth diminishing, the forward-looking components of the survey suggests firms are expecting challenging conditions to continue.”

Nick Stamenkovic, senior economist with Royal Bank of Scotland, added:

“Business output and new orders moved back into positive territory at the end of Q2 2019, led by the services sector. However, private sector employment slowed and business confidence remains subdued, below the UK average”.

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