The latest Royal Bank of Scotland PMI® revealed a
renewed rise in business activity across the Scottish private sector at the
start of the year.
At 51.7, up from 49.4 in December, the index signalled that
private sector output expanded for the first time in six months. The upturn was
solely reliant on the gains made in the service sector, while manufacturers
reported a further sharp reduction in production volumes. The service sector
benefited from improved demand conditions, and reported a second consecutive
monthly rise in new orders. However, manufacturing firms struggled to drive
sales in the latest survey period. The opposing pull of the sectors meant only
a fractional fall in overall new orders.
Reflective of activity and new order growth, only the service
sector raised its staffing levels in January, and that too at an accelerated
pace. Employment levels fell at manufacturers for the first time in four
months.
A seventh consecutive monthly fall in new orders was recorded
across Scotland in January. The decrease resulted from a sustained and sharp
fall in new factory orders. However, the downturn moderated, with the rate of
decrease the weakest since last July and fractional overall. The uptick in the
respective seasonally adjusted index was driven by a stronger rise in inflows
of new business at service providers. Firms attributed this to improvement in
demand conditions, new client wins and increased advertising.
Meanwhile, new business rose for the second successive month and
to a greater extent at the UK level.
Scottish private sector firms remained confident regarding the
year-ahead outlook in January. Hopes for improvement in business conditions and
increased marketing plans were said to have underpinned expectations. That
said, the degree of confidence dimmed slightly from December's seven-month
high, and was the weakest of the 12 monitored UK regions and nations.
Despite continued weakness in new orders, the Scottish labour
market remained resilient, with employment now rising for a year. However, job
creation was limited to the service sector. Here, surveyed businesses noted
that planned growth and anticipated orders led to stronger recruitment drives.
Meanwhile, goods producers registered a fresh decline in staffing levels for
the first time in four months.
Of all the monitored areas, only London surpassed Scotland by
signalling the strongest uptick in employment during January.
January data revealed a ninth consecutive monthly decline in
outstanding business across Scotland's private sector. The rate of depletion
softened notably from December's recent record and was modest. Reduced business
activity and sustained growth in employment allowed firms to work through any
outstanding tasks.
Backlogs of work also fell at the UK-level. The rate of decrease
however, was stronger than seen for Scotland.
Continuing the trend which began in June 2020, cost burdens rose
across the Scottish private sector in January. The rate of inflation quickened
from the recent low in December to a five-month high and was substantial
overall. Rising fuel, energy and salary costs, as well as increased
prices from the suppliers, were said to have pushed up input costs.
The rise in cost burdens across Scotland was also the
third-strongest of the 12 monitored regions and nations, with only London and
the East of England registering stronger increases.
Prices charged by Scottish private sector companies rose at a
historically sharp and slightly accelerated pace at the start of 2024. The
latest rise in charges was widely attributed to the pass-through effects of
growing cost burdens.
In fact, of the 12 monitored regions and nations, Scotland
recorded the sharpest rise in charges levied for the provision of goods and
services.
Judith Cruickshank, Chair,
Scotland Board, Royal Bank of Scotland, commented:
"The Scottish private sector recorded an uplift in activity
at the start of the year. The upturn was the first seen in six months and solid
overall. However, growth was imbalanced, centred solely at service providers
who have shown resilience amid a subdued economic climate. Meanwhile, the
manufacturing sector reported a further sharp deterioration.
"Going forward, Scotland's private sector maintains a healthy
outlook for output in the coming 12 months. However, elevated inflation and
interest rates as well as lingering economic uncertainty could undermine growth
prospects."