Brexit concerns as private sector output falls again

Private sector output in Scotland declined during May for the fifth time in the last six months, reversing the modest pick-up in activity seen in April, according to the latest Royal Bank of Scotland PMI (Purchasing Managers’ Index.)

The decline reflected contraction at service providers, as manufacturers recorded a marginal expansion in production.

New orders also declined, but intensified cost pressures led companies to raise selling prices at a quicker pace.

Operating expenses were driven higher by labour costs, as firms continued to expand their workforces.

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index — a measure of combined manufacturing and service sector output — fell to 48.9 in May from 51.0 in April, signalling a reduction in private sector activity, the fifth in the past six months.

Malcolm Buchanan, chair, Scotland Board, Royal Bank of Scotland, said: “Private sector business activity was dragged back into contraction by a weaker service sector in May, reversing the rebound seen in this part of the economy which helped reinstate overall growth in Scotland in April.

“For the fifth time in six months, new orders fell. Panellists attributed order book contraction to weak overseas demand and reduced confidence within the local economy.

“Brexit-related concerns and fears of slowing economic growth north of the border remained prominent, ultimately keeping business confidence subdued and below the UK average.”

Relative to other areas of the UK, only Northern Ireland observed a quicker fall in output than Scotland.

Softer demand conditions enabled firms to work through outstanding business in May, reducing backlogs for the eighth month in succession.

Employment increased for a 15th straight month.

That said, the rate of job creation was modest.

Scottish businesses anticipate output to rise over the coming year, but the degree of confidence remained subdued by historical standards, lagging behind the UK average.

Brexit concerns and forecasts of weaker growth of Scotland’s economy weighed on sentiment.