GROWTH of the Scottish private sector economy accelerated slightly in January as manufacturing performed well but services stagnated, while inflationary pressures continued to mount following sterling’s Brexit vote-induced tumble, a survey shows.
Bank of Scotland’s latest PMI (purchasing managers’ index) report, published today, also signals an acceleration of new business growth in the private sector economy in January to the fastest pace for 20 months.
The headline output index rose from 50.7 in December to 51.2 in January on a seasonally-adjusted basis, moving further above the level of 50 deemed to separate expansion from contraction to signal a modest acceleration of growth of Scotland’s private sector economy.
Growth in Scotland was again well adrift of that in the UK as a whole in January. The UK output index fell from 56.7 in December to 55.5 in January, but was still well above the Scottish reading.
The Scottish manufacturing output index jumped to 55.8, from 51.6 in December, to signal a sharp acceleration in this sector’s growth to the fastest in 34 months.
This coincided with a sharp acceleration of growth of overall new orders for Scottish manufacturers to the sharpest rate since August 2014. New export orders increased at the fastest pace for 79 months, with firms citing the weakness of the pound as the main factor driving incoming business from abroad.
However, the weak pound also saw Scottish manufacturers experience one of the sharpest rises in their overall costs in the 19-year history of the survey. Bank of Scotland said that more than 48 per cent of manufacturers recorded a rise in their average cost burdens, with “many commenting on exchange rate movements as the main factor driving the latest rise in input prices”.
Factory gate prices meanwhile rose at their fastest pace in 69 months. Around one in four manufacturers increased their output prices during January, with less than one per cent reporting a reduction.
In spite of the stronger manufacturing performance, the sector shed staff in January, after adding to its workforce in December.
The Scottish services sector stagnated in January, after growing marginally in December. The services business activity index fell to 50, from 50.5 in December.
Services firms reporting declines in output linked these partly to “Brexit uncertainty”, Bank of Scotland noted. And the Scottish services sector also shed jobs in January, having shown a modest rise in its workforce in December.
Scottish services firms recorded a slight increase in new business last month. However, they saw their costs rise at the second-sharpest rate in five years in January. Nearly one in three services companies registered a rise in input costs, and only three per cent reported a decline.
And Scottish services firms last month raised their selling prices at the fastest pace in six years.
Nick Laird, managing director of commercial banking north of the Border for Bank of Scotland, said: “The start of 2017 proved promising for Scottish private sector companies as new order growth accelerated to a 20-month high, encouraging firms to raise business activity faster.”
However, he added: “Underneath the positive headlines…we note that the increase in demand was more positive for Scotland’s manufacturers than their service sector counterparts.
“Whilst the former raised production at the fastest pace for 34 months in January 2017, the latter saw their service output unchanged since the end of 2016. As such, whilst the latest figures give cause for optimism, the overall improvement in business conditions for the Scottish private sector remained modest.”
A survey today from accountancy firm Moore Stephens shows 35 per cent of small and medium-sized enterprises in the UK have already been negatively affected by Brexit.
Mark Lamb, partner at Moore Stephens, said: “The fall in the pound has meant that imports of raw materials and other goods are now significantly more expensive for businesses, particularly for those smaller businesses with a smaller cash cushion to fall back on.”
He also cited the effect of “general uncertainty”.
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