Scotland’s economy enjoys a summer of success

bankOfScotlandLogoWhile this summer’s weather has left the country largely underwhelmed, two separate reports published today have described a Scottish economy that is looking bright.

The Bank of Scotland’s latest Private Market Index report has revealed private sector companies reported further growth of output and new orders at the start of the third quarter with activity increasing at its strongest rate in 2015 so far.

July data signalled a further rise in activity at Scottish private sector companies, as highlighted by the headline index – the seasonally adjusted Bank of Scotland PMI, a single-figure measure of the month-on-month change in combined manufacturing and services output – remaining above the 50.0 no-change mark. At 52.2, up from 51.2 in June, the index signalled the most marked rise in output since last December.

Sector data showed that manufacturers reported a stronger increase in activity than service providers. Moreover, output growth in the goods-producing sector was the strongest in nearly a year.

Meanwhile, companies reported further growth of new business in July, with the pace of expansion little-changed since June. Some panel members linked increased order intakes to higher marketing activity.

However, employment levels fell for the first time in nearly four years and companies reported ongoing spare capacity.

Private sector firms reported the first decline in staffing levels since October 2011 during July, largely a result of job shedding in the service sector. Some panellists linked job cuts to internal restructuring efforts. The rate at which workforce numbers were reduced was modest.

Ongoing spare capacity was signalled in the Scottish private sector in July. Moreover, the rate at which work outstanding was depleted accelerated slightly since June.

As has been the case throughout most of the survey history, input costs in Scotland’s private sector increased in July. The rate of cost inflation slowed to a five-month low, with manufacturers reporting a decline in input prices. Some companies passed higher input costs on to their clients, resulting in the first rise in average charges since last December. However, the rate of output price inflation was only marginal overall.

Donald McRae
Donald McRae

Donald MacRae, Chief Economist at Bank of Scotland, said: “July’s PMI at 52.2 was the highest so far this year. Activity grew in the services sector while manufacturing output showed a welcome return to growth after the contraction of the last three months. New orders rose in all sectors while the pace of decline in new export orders slowed. Although employment fell the Scottish economy continued the recovery from the slowdown in the first quarter of the year. Moderate growth is expected for the rest of 2015.”

Meanwhile, the latest Business Trends Report by accountants BDO also showed businesses in Scotland are on course for a summer of success.

BDO’s Output Index rose to 104.4 this month (up from 104.1 in July), which indicates growth in business activity. Businesses have reacted positively to the political stability after the general election, and increased certainty has encouraged businesses to invest and focus on their long term prospects. This is particularly true for sectors such as property and financial services which had feared policy change.

Although business optimism is down this month (falling from 103.9 to 103.2) it is still significantly above the long-term trend. This shows that the UK is starting to pull ahead from other global heavyweights in the Eurozone and some emerging markets, BDO said.

The dip in optimism this month can be attributed to the export-focused manufacturing sector and its dependence on global markets.

Companies have also benefited from falling commodity prices. Although the BDO Inflation Index tipped into positive territory this month (rising to 95.2 from 94.6), cheaper commodities, especially oil, are keeping business costs down and improving profits.

Martin Gill
Martin Gill

Commenting on the findings, Martin Gill, head of BDO in Scotland, said: “Political certainty has bolstered short-term business confidence. The result is a thriving economy, despite global economic unrest.

“However, as business success continues to exceed other markets, the strong pound will make it harder for our exporters – particularly manufacturers – to find customers. We can’t let confidence tip over into complacency; keeping us competitive should be a government priority.”

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