Strong pound slows growth in Scots manufacturing export

Donald MacRae
Donald MacRae, chief economist at Bank of Scotland

Output and new orders expanded across Scotland’s manufacturing and service sectors in August, according to the Bank of Scotland’s latest PMI report.

However, expansion has eased since July, with manufacturers feeling the effect of a strong pound as growth in export orders fell sharply.

The seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - fell slightly to 50.8 in August, down from 52.2 in July and the lowest since April.

The Bank of Scotland PMI is compiled by Markit based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies.

Following a reduction in July, staffing levels rose in August, according to the report. The expansion was broad-based by sector. Meanwhile, cost burdens rose at the slowest rate in 16-and-a-half years, while competitiveness led businesses to offer price discounts.

Sector data signalled slight increases in output across both the manufacturing and service sectors. Domestic demand was sustained, with both sectors reporting growth in new business in August. Survey participants linked the overall rise in new business inflows to investments in marketing campaigns.

Scottish private sector firms reported a return to employment growth in August, although the rise was less substantial than the average for the UK. Where payroll numbers rose, this was linked by survey members to new business growth.

Outstanding business held by companies in Scotland’s private sector continued to decline, and the rate of depletion accelerated in August.

Average input costs rose in August, although the rate of inflation eased to the weakest since February 1999 amid lower fuel prices and a strong pound. Although input prices rose in the service sector, a decrease was signalled by goods producers.

On the other hand, output prices fell in August. Price cuts were broad-based across both the manufacturing and service sectors. There were reports that discounts had been offered as part of efforts to secure more work.

Donald MacRae, chief economist at Bank of Scotland, said: “August’s PMI was 50.8, recording a fall in the month but still signalling growth. Output and employment grew in all sectors but at modest rates. New business grew slowly in both manufacturing and services while new export orders fell for the seventh successive month.

“The private sector continues to recover from the slowdown at the start of the year but the Scottish economy will have to rely on the Government sector to raise growth to trend levels in the third quarter of this year.”

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