RBS: Cost pressures ease slightly as Scottish economy expands

RBS: Cost pressures ease slightly as Scottish economy expands

Judith Cruickshank

Scotland’s private sector activity expanded for the fifth consecutive month in May, the strongest pace in two years, according to the Royal Bank of Scotland Business Activity Index.

This growth was driven by increased demand for services, which offset a continued downturn in manufacturing.

Service firms saw new business rise to a three-month high, leading to increased hiring and a slight rise in backlogs. In contrast, manufacturing new orders fell sharply, with companies reporting lower demand.

Alongside Scotland, London was the only other area which recorded a rise in the level of outstanding business.

Although cost pressures remained high due to rising labour, fuel, and raw material costs, inflation eased slightly from April’s eight-month high. Businesses remained optimistic about future growth, with service sector confidence particularly strong. However, overall optimism was tempered by concerns about the manufacturing sector’s ongoing struggles.

Judith Cruickshank, chair of Scotland Board at RBS, commented: “The Scottish private sector exhibited further gains midway through the second quarter.

“The upturn was contingent on the sustained rise in services activity which rose at a sharp and quicker rate and was vital in offsetting the shortfalls seen at manufacturers. Moreover, the divergence between the two sectors is set to persist as manufacturing new orders fell rapidly, while demand trends improved for services.

“May data also signalled a faster rate of job creation and a fresh rise in outstanding business. However, these upturns were again fuelled by the service sector.

“While the service sector looks set to expand in the coming months as expectations for future activity strengthens, the manufacturing sector will only hold back growth momentum, unless demand for goods picks up.”

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