Private sector increases at fastest pace in 10 months

Output across the Scottish private sector economy increased at the fastest pace since July 2017 during May, according to the latest Royal Bank of Scotland PMI (Purchasing Managers’ Index).

Business activity growth was underpinned by the sharpest expansion in order book volumes for 46 months.

Subsequently, firms hired additional staff at a quicker rate.

Overall, the rate of growth in Scotland was stronger than that seen for the UK as a whole.

However, higher labour costs were reported to have contributed to input cost inflation. In turn, output prices continued to be raised.

The seasonally adjusted headline Royal Bank of Scotland PMI rose to 53.7 during May, from 52.6 in April, to signal the strongest rate of private sector output growth in ten months.

Any reading above 50 indicates an overall increase compared to the previous month.

For the first time since October last year, the overall rise was broad-based, with both manufacturers and service providers observing greater business activity.

Malcolm Buchanan, chair, Scotland Board, Royal Bank of Scotland, said: “Growth in the Scottish private sector economy gathered momentum during May.

“Positive business conditions were underpinned by healthy inflows of new work, encouraging firms to raise employment to the sharpest extent since December 2014.

“Increased staff hiring added to pressure on operating costs, however, as input prices continued to increase at a steep rate.

“Businesses took advantage of the robust demand environment and passed on greater costs to their clients.

“That said, output price inflation was markedly weaker than that of cost burdens, indicating some degree of profit margin erosion.”

The Royal Bank of Scotland PMI is compiled by IHS Markit from responses to questionnaires sent to a panel of around 500 manufacturers and service providers.

May survey data pointed to the fastest expansion in new orders since July 2014.

New product launches, stronger export sales and successful contract tendering were all linked to the improvement in demand.

Sector data indicated that service providers recorded a faster rise than their manufacturing counterparts.

To cope with demand pressures, businesses recruited extra staff at a solid pace in May.

In fact, the rate of job creation accelerated to a 41-month high.

As was the case with new orders, employment growth was led by the service sector.

Profit margins remained under pressure during the latest survey period, with input prices rising at a substantial rate.

Increased operating expenses were primarily linked to higher energy, food and labour costs.

While inflation slowed in the manufacturing sector, service providers observed a faster rise.

Firms responded by raising output charges for the twenty-second consecutive month.

The rate of increase remained unchanged from April’s 15-month high.

Business confidence remained elevated during May.

Forecasts of stronger demand, particularly from overseas markets, was cited by firms anticipating greater output over the coming 12 months.