Scottish business activity returns to growth at end of 2016

Business activity in Scotland returned to growth in the final month of 2016, supported by a slight increase in new order wins along with a rebound in job creation, according to the latest Bank of Scotland Regional Purchasing Managers’ Index (PMI).

However, cost pressures continued to rise, leading to a faster increase in the prices charged for goods and services.

At 50.7 in December, the seasonally adjusted headline Bank of Scotland PMI rose from November’s 49.4 to its highest level for three months. The index shows the month-on-month change in combined manufacturing and services output.

Although output returned to growth territory, the pace of increase remained below the long-run series average. The expansion was broad-based across Scotland’s manufacturing and service sector, with panel members linking this to stronger underlying demand.

Scotland’s private sector registered a slight increase in new business during the final month of 2016, ending a two month sequence of decline. December survey data also pointed to a return to growth in Scotland’s workforce numbers as the rate of job creation hit a four-month high.

Cost pressures intensified further in Scotland’s private sector at the end of 2016.

The rate of inflation quickened to a 67-month high and continued to outstrip the historical average.

Service providers linked the increase to higher prices for fuel, timber and food, while goods producers reflected on the depreciation of the pound.

Subsequently, average selling prices set by Scotland’s businesses rose at their fastest level since April 2011.

Nick Laird, regional managing director, Bank of Scotland Commercial Banking, said: “With output, new orders and employment all returning to growth, and backlogs slowing, Scotland’s economy bounced back at the end of 2016. The improvement in business conditions across both the manufacturing and service sectors puts Scotland on a firmer footing as we start the New Year. Headwinds remain however, principally through the continued increase in input costs, which rose at their sharpest pace for 67 months. Given the strain this will place on operating margins, firms throughout Scotland will undoubtedly be looking for this to ease during the year ahead.”