Scots private sector remains in lockdown contraction

The volume of new work received by private sector firms in Scotland continued to plummet in May “with anecdotal evidence linking the fall to temporary business closures and weak client demand amid continued lockdown restrictions as a result of the COVID-19 pandemic.”

That’s according to the latest Royal Bank of Scotland purchasing managers’ index (PMI) report.

The report said business activity in Scotland’s private sector continued to decline substantially in May, as lockdown restrictions continued to disrupt the economy. 

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index — a measure of combined manufacturing and service sector output — posted 21.1 in May, rising from April’s nadir of 10.7 but still indicative of a rapid contraction.

The pace of the contraction in new work received by private sector firms was slower than in April, but still the second-fastest since data collection began in January 1998.

At the sector level, the drop in order book volumes was again sharper in services, although both manufacturers and service providers recorded a softer decline than in April.

However, private sector firms in Scotland did signal renewed optimism for activity over the year ahead in May.

“The Future Output Index posted above the 50.0 no-change mark for the first time since February, with panellists linking optimism to looser lockdown restrictions and hopes of an economic recovery,” said the report.

“That said, sentiment remained among the lowest on record. Across the 12 monitored UK areas, only Northern Ireland registered a weaker outlook than Scotland.”

Private sector firms in Scotland cut their workforce numbers again in May, extending the current sequence of job cuts to four months.

The rate of job cutting was the second-quickest on record.

Malcolm Buchanan, Chair, Scotland Board, Royal Bank of Scotland, said: “The Scottish private sector continued to be affected by the COVID-19 pandemic in May, with latest data highlighting further rapid declines in both activity and new business.

“The rates of contraction softened from April’s records, but were still the second-quickest in over 22 years of data collection.

“With demand essentially frozen, companies continued to make substantial reductions to workforce numbers.

“With restrictions easing, sentiment regarding activity over the year ahead returned to a positive footing as businesses look set to reopen and amid hopes of improved demand and an economic recovery.

“Overall, conditions in the Scottish economy remain extremely challenging, with reductions in activity, new business and backlogs all outpacing those seen at the UK level.

“Although data indicates that the downturn has bottomed out, the pandemic has dealt an unprecedented blow to the economy.”