Private sector activity falls at fastest rate on record

Private sector activity in Scotland fell at an unparalleled rate during April, according to the latest Royal Bank of Scotland Purchasing Managers’ Index (PMI).

“Inflows of new business declined the most on record, as the COVID-19 pandemic continued to clatter the private sector economy,” said the report.

“As was the case in March, services recorded a quicker decline than manufacturing, although both sectors saw the most marked reductions in activity on record.”

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index — a measure of combined manufacturing and service sector output — fell from 29.7 in March to a fresh series low of 10.7 in April, and signalled the most substantial contraction in private sector activity in the 22-year survey’s history.

The combined drop in the index from February was a considerable 39.4 points.

Private sector firms recorded a back-to-back reduction in total new business during April, with the rate of contraction accelerating further to a fresh series low.

According to respondents, the COVID-19 pandemic and subsequent emergency measures had led client demand to plunge.

Amid the considerable contraction in client demand, firms reduced workforce numbers further in April.

The rate of job shedding was the quickest recorded in the report’s history.

Malcolm Buchanan, chair, Scotland Board, Royal Bank of Scotland, said: “The COVID-19 pandemic continued to cause severe repercussions for the Scottish economy in April, with latest data pointing to an unprecedented reduction in private sector activity.

“Services bore the brunt of the downturn for a second month, although both service providers and manufacturers recorded record contractions in business activity.

“Incoming new business declined at the most marked rate in over 22 years of data collection, with firms mentioning that demand both domestically and from abroad had collapsed.

“Unsurprisingly, the 12-month outlook for activity remained negative for the second month in a row, amid substantial uncertainty surrounding the economic fallout of the pandemic, although firm’s expectations did pick up slightly from March’s recent low.

“The COVID-19 induced downturn formed part of a wider UK trend in April, but Scotland fared worse than the UK as a whole, with the decline quicker than at the national level.

“Although there is some discussion of an exit plan from the current quarantine restrictions, it is unlikely that the economy will recover quickly from such a severe downturn.”