Scottish business confidence strengthens to 43-month high

Activity in the Scottish private sector returned to expansionary territory in January, following a contraction at the end of 2017, as private sector business optimism strengthened markedly to a 43-month high, according to Bank of Scotland analysis.

The seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - registered at 50.3 in January, from 49.4 in December.

Although the pace of output growth signalled was only marginal, it represented an improvement from the mild decline observed in December.

Scottish private sector firms reduced activity fractionally. That said, the pace of contraction weakened and was marginal. Meanwhile, order book volumes expanded across the Scottish private sector in January.

New business inflows rose markedly in the manufacturing sector, supported by new customer wins and renewed export growth. In the service sector, panellists reported that successful tendering had contributed to higher order intakes.

Greater staff levels enabled Scottish private sector firms to clear outstanding business. Backlogs of work were reduced in January, albeit to the softest extent since September last year.

Firms took advantage of stronger demand and raised output prices in January. In fact, selling charges were increased to the sharpest extent in five months. That said, input cost inflation outstripped that of output prices to a marked degree, thereby signalling a squeeze to private sector profit margins. Cost pressures intensified in January to a nine-month high.

Lastly, fresh expansions in new business and output coincided with greater private sector business confidence during January. Moreover, the degree of optimism strengthened to a 43-month high.

Fraser Sime, Regional Director, Bank of Scotland Commercial Banking said: “Scotland started 2018 with renewed private sector business activity growth, according to the latest Bank of Scotland PMI data. The upturn was led by manufacturers, while service providers signalled a fractional decline in output.

“Both new business inflows and employment increased in the Scottish private sector, fuelling stronger business confidence. The degree of optimism in the future rose to a 43-month high in January.

“With improved demand conditions, firms raised prices for an eighteenth straight month. That said, input cost inflation remained far greater than that of selling prices, indicating tighter profit margins.”