Scottish private sector activity contracts at record rate in March
Business activity across Scotland’s private sector declined at the quickest rate since the survey began in January 1998 during March due to the coronavirus outbreak, according to the latest Royal Bank of Scotland PMI.
The decline arrives as impacts stemming from the coronavirus pandemic hit the Scottish private sector economy.
The index has revealed that Scotland was one of the areas hit the hardest by the COVID-19 outbreak in March.
The business activity index for the UK as a whole plummetted from 53 in February to 36 last month, drastically below the level of 50 deemed to separate expansion from contraction.
The activity index score for Scotland – a combined measure of the service sector and manufacturing output – plunged to 29.7, a drop from 50.1 in February. This was the second-worst score after Northern Ireland on 29.1.
Scottish firms also cut jobs at a faster rate than any of the other 11 nations and regions covered, with the cuts to payroll numbers the deepest since the PMI survey began in January 1998.
At the sector level, services reported the steepest reduction on record, while the fall in manufacturing production was the sharpest since early-2009.
Driving the fall was a renewed reduction in new business, with the decline in order books also the quickest on record. With client demand tumbling, firms’ expectations with regards to activity were the weakest since this series began in 2012.
March survey data signalled a renewed decline in overall new business, with panellists linking the fall to weak client demand amid the COVID-19 pandemic. The contraction was the steepest on record. Furthermore, of the 12 monitored UK areas, only Northern Ireland reported a sharper decline.
Amid weak demand conditions, Scottish private sector firms reduced workforce numbers during March. The rate of job shedding was the sharpest in the series 22-year history and outpaced that seen at the UK level.
Nonetheless, the level of outstanding business at Scottish private sector companies continued to decline, as has been the case in the all but one of the past 18 months. According to panellists, weak demand as a result of the COVID-19 pandemic allowed them to direct remaining resources to unfinished work.
On the price front, cost burdens continued to rise during March, as has been the case in each month since the series began over 22 years ago. That said, the rate of input price inflation was one of the softest on record.
Average prices charged for goods and services in Scotland declined for the first time since July 2016, however. The fall was the quickest since the series began in November 1999 and sharp.
Amid substantial uncertainty relating to the coronavirus pandemic, confidence among Scottish firms with regards to activity in March collapsed. For the first time in the series near eight-year history, private sector firms expect activity to decline in the coming year.
Nick Stamenkovic, senior economist at RBS, said it is difficult to make any judgements on why Scotland was among those regions worst affected. As every part of the UK economy is in uncharted territory, drawing meaningful comparisons is problematic.
He said: “We are not talking about a recession like at the time of the financial crisis. This is more akin to what happened in the 1930s, in that the UK economy and the global economy have come to a sudden stop.”
He added that he agreed with yesterday’s predictions from the Office for Budget Responsibility that the UK economy could shrink by over a third during the second quarter of 2020.
Mr Stamenkovic added that recovery would depend on when lockdown measures are removed.
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