Tag: contraction

Scottish private sector remains in downturn in January

  • Private sector activity falls at a quickened pace in January
  • Downturn in new orders extends to seventh month
  • Marked drop in service sector new business

The Scottish private sector reported a further fall in total activity during January according to the latest Royal Bank of Scotland PMI® data.

The Business Activity Index – a measure of combined manufacturing and service sector output – fell from December’s five-month high of 48.3 to 47.1, signalling a quickened contraction in private sector output, and extended the current run of contraction to six consecutive months.

The rising cost of living, supply chain disruptions and a slowdown in the housing market all contributed towards the latest downturn in activity.

At the sector level, January data revealed that service firms led the decline, registering faster rates of reduction in both business activity and new orders compared to their manufacturing counterparts.

New business received across the Scottish private sector posted a further contraction in January. Moreover, the pace of decrease quickened from December’s three month low, signalling a sharp reduction in new work.

The downturn was led by a faster fall in new business received at service providers, while goods producers reported the softest decline in eight months. A slow housing market, transport strikes and squeezed disposable incomes were all in part blamed for the drop in new orders.

Of the 12 monitored UK regions, Scotland registered the sharpest pace of contraction in incoming new business.

After weakening for the second month running, business expectations across Scotland improved during January and printed a six-month high. Optimism largely stemmed from anticipation of new projects and increased activity. That said, the latest reading continued to post below the survey average as worries over the war in Ukraine, energy crisis, slowdown in the real estate sector and the cost-of-living crisis weighed on growth expectations.

Additionally, business sentiment across Scotland registered the third-weakest in the UK, ahead of Northern Ireland and the North East of England.

For the second month running, workforce numbers contracted across the Scottish private sector in January. The rate of job shedding was modest overall and only fractionally quicker than that seen in December. Where a drop in employment was noted, firms cited resignations, redundancies and retirements.

The drop in workforce numbers across Scotland contrasted with the no change seen at the UK-level.

The levels of unfinished work fell during January across Scotland’s private sector, thereby extending the current trend seen since last June. Moreover, the respective seasonally adjusted index ticked down from December’s four-month high, signalling the fastest rate of depletion in the aforementioned sequence. According to anecdotal evidence, lower orders allowed firms to work through previous contracts.

The rate of backlog depletion across Scotland was the fastest of all the 12 monitored UK regions.

Firms across Scotland’s private sector recorded a sharp rise in prices during January, thereby stretching the current run of inflation to 32 months. While the rate of incline measured the softest since May 2021, the latest upturn was still marked and historically elevated. According to anecdotal evidence, the incline in input costs was linked to higher prices for raw material, energy and transport, inflation and higher wages.

The pace of input price inflation across Scotland was the second-softest among the UK regions, behind the North West of England.

Private sector firms across Scotland raised their charges for goods and services for the twenty-seventh month running in January. Though the pace of charge inflation slowed to a three-month low, it remained stronger in context of survey data. The rise in charges reflected increasing cost pressures.

Adjusted for seasonality, the Prices Charged Index for Scotland posted below the UK-wide figure.

Source: Royal Bank of Scotland, S&P Global

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented: “The start of the year revealed that the downturn in Scottish private sector activity that began last August was extended into 2023.

“Moreover, the latest decline in private sector activity accelerated. It seems unlikely that the sector will bounce back anytime soon as services firms were severely impacted by the depressed demand conditions and the current economic climate.

“The step back in client activity has also resulted in firms trimming their workforce numbers for the second month running. Alongside an ongoing drop in the level of unfinished work, a further reduction in payroll numbers can be expected.

“However, the latest figures indicate that perhaps the worst of inflation has passed. Nonetheless, the current rates of input price and output charge inflation are still elevated and can be detrimental to the health of the Scottish private sector.”

Royal Bank of Scotland: Downturn deepens amid falling demand

  • Business Activity Index falls to 45.8 in October from 48.0 in September
  • Contraction in new orders quickens
  • Growth in employment further weakens

The contraction across Scotland’s private sector firms deepened during October, according to the latest Royal Bank of Scotland PMI® data. Adjusted for seasonality, the Business Activity Index posted below the neutral 50.0 threshold for the third month running, at 45.8, indicating a sharp decrease overall.

Inflows of new business also went into further decline, the latest downturn being the most severe in 20 months. To further add weakness across the sector, inflationary pressures reaccelerated from September’s recent low, as service providers reported quicker upturns in input costs and charges during October.

The gloomy performance resulted to the softest intake of workers in 18 months, with goods producers reporting their first reduction in employment since January 2021.

New business received at Scottish private sector firms fell sharply during October. The rate of decrease quickened from September to the fastest in the current fourth-month sequence of reduction.

Of the two sub-sectors, manufacturing firms reported the steeper downturn. Companies noted that looming recession, economic uncertainty and the cost of living crisis weighed on client activity.

The downturn in incoming new business across Scotland outpaced the UK-wide average.

Output expectations for the year ahead across private sector firms in Scotland strengthened in the three months to October. The increase in confidence was underpinned on planned expansions and investment, with firms also hopeful of future economic stability. That said, sentiment was relatively muted in context of historical data.

Business confidence across Scotland was broadly in line with that recorded for the UK as a whole.

Employment across the Scottish private sector expanded for the nineteenth month running in October. However, amid a cooldown in hiring activity at service providers, with goods producers reporting their first contraction since January 2021, the overall rate of growth ticked down to the joint-lowest in the aforementioned series.

The rate of job creation across Scotland remained softer than that seen at the UK level, which similarly also slowed in October.

October’s survey showed a sustained fall in levels of outstanding business across Scotland’s private sector. The respective seasonally adjusted index posted below the neutral 50 threshold for the fifth consecutive month, the latest reading signalling the fastest depletion in work outstanding since January 2021. As per surveyed businesses, declines in new orders allowed firms to work through previous backlogs.

The rate of contraction in Scotland was the third-fastest across the UK, ahead of Northern Ireland and Wales.

October data signalled a robust rise in input costs across Scotland’s private sector, thereby extending the run of inflation to 29 months. Adjusted for seasonality, the latest reading increased from September’s 13-month low as a result of a reacceleration in input price inflation reported at service firms. The uptick in average costs was attributed to higher wages and utilities, cost of living crisis and general inflation adding strain on costs.

Despite being severe, the pace of input price inflation was however, softer than the UK average.

In line with the upturn in average cost burdens, charge levied by Scottish private sector firms also inclined from September’s recent low at a quickened rate during October.

The rate of charge inflation across Scotland posted weaker than the UK-wide average which slowed during October.

Source: Royal Bank of Scotland, S&P Global.

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented: “The Scottish private sector reported a third month of contraction during October. The downturn in activity quickened on the month, as stubbornly high inflationary pressures, the ongoing cost of living crisis and a threat of recession deterred growth. New orders received at firms also fell further.

“Employment trends across the sector indicated a slowdown in hiring activity over the recent months. The latest upturn was the joint-softest in the current 19-month sequence of expansion. At the same time, the level of outstanding business also fell at a much sharper rate. The data thus suggesting the further weakness in the labour market will not be surprising.

“As we proceed into the final quarter of the year, market conditions are set to become more challenging. The aggressive interest rate hikes, the decline in the value of sterling against the dollar and the rebound in post-COVID demand phasing out, all amidst the ongoing cost of living and energy crises, all point to an extremely difficult period for Scotland.”