Scotland’s private sector growth slows in June

Scotland's private sector growth slows in June

Judith Cruickshank

Scotland’s private sector output continued to grow in June, according to the Royal Bank of Scotland Growth Tracker, but at a slower pace compared to May.

The headline Business Activity Index, posted above the neutral 50.0 mark, but ticked down to a five-month low of 51.9, from 55.2 in May, reflecting the recent cooldown in service sector activity. The rate at which output expanded across Scotland was also weaker than that observed at the UK level.

The slowdown in private sector output was accompanied by a fresh fall in new business, which was the first recorded in five months. Employment rose in the latest survey period, but at the second-weakest rate since the current run of expansion began in February 2023. However, inflationary pressures continued to subside as cost burdens rose at the weakest rate in 40 months.

Despite easing slightly on the month, projections for the year ahead outlook across Scotland remained optimistic and broadly in line with the long-run average trend in June. Businesses were hopeful that demand conditions would improve in the coming months and planned to raise their advertising and investment.

Judith Cruickshank, chair, Scotland Board, RBS, said: “The Scotland Growth Tracker signalled modest gains in private sector activity during the latest survey period.

“While the upturn lost momentum, as the service sector observed a notable cooldown in June, the ongoing downturn in the manufacturing sector showed further signs of easing as output was broadly stable, and the downturn in new orders moderated. Additionally, private sector companies continued to raise their staffing levels, albeit the latest uptick was fractional overall.

“Price pressures continued to abate as the year progressed, Cost burdens rose at the weakest pace since February 2021, and the rate of charge inflation equalled the weakest seen over the same period. Some firms were keen to price competitively in order to generate new sales.”

Performance in relation to UK

A fresh decline in new business was recorded across the Scottish private sector in June, thereby ending a four-month run of growth. Underlying data noted that service providers joined their manufacturing counterparts in contraction. Panellists attributed the downturn to reduced client activity and advertising spend, as well as a prolonged high interest rate environment and the general election.

Scotland, alongside five other nations and regions, went against the UK trend, which signalled a sustained rise in new business.

That said, Scottish businesses remained less optimistic than the UK private sector as a whole.

Growth in Scottish private sector employment lost momentum as the first half of the year concluded. Headcounts rose only fractionally and at the second-weakest rate in the current 17-month sequence of increases. While some firms reported success in filling long-standing vacancies, the wider economic climate and reduced client activity resulted others lowering their staffing levels.

Employment growth also moderated across the UK as a whole, the rate of job creation slightly weaker than that seen in Scotland.

Moreover, businesses in Scotland reduced their backlogs solidly in June, with contractions now noted for the most part of the last two years. The rate of depletion was the most pronounced in 2024 so far and surpassed the UK-wide average. Reduced business requirements allowed firms to complete unfinished work.

Turning to prices, Cost burdens rose sharply at Scottish private sector firms in June. The rise in input prices was often said to have resulted from growing raw material and supplier costs. That said, the rate of input price inflation moderated further to the weakest since February 2021 and was softer than that seen at the UK level.

As a result, Scottish private sector firms raised their charges only modestly during June. The rate of increase was the joint-softest in 40 months. Moreover, output prices were raised across Scotland at a much weaker pace than observed across the UK as a whole.

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