Scots economy returns to growth; confidence high

Scotland’s economy returned to growth during March, according to the latest IHS Markit-Royal Bank of Scotland Purchasing Managers’ Index (PMI) report.

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index — a measure of combined manufacturing and service sector output — rose to 54.3 in March, up sharply from 44.1 in February, to report  the first upturn in output since last September.

The report said inflows of new work were broadly stable as looser restrictions buoyed demand in some sectors, while hopes of a swift economic recovery pushed business confidence to the highest on record (since mid-2012).

March also saw further signs of inflationary pressures, however.

Input costs rose at the most marked rate since August 2018, amid reports of supplier shortages as well as additional Brexit and coronavirus disease 2019 (Covid-19) related costs.

As a result, Scottish companies increased their charges at the quickest pace for nearly two years.

Malcolm Buchanan, chair, Scotland Board, Royal Bank of Scotland, said: “The end of the first quarter saw a return to growth for the Scottish private sector economy.

“Output rose for the first time in six months, and solidly, while inflows of new work neared stability as looser lockdown measures provided a boost to many firms.

“Supply chain issues, shortages, Brexit and the pandemic were all attributed to greater inflationary pressures, however, highlighting that the recovery may well bring with it higher prices due to ongoing logistical constraints.

“Nonetheless, business confidence hit a fresh record high in March, with companies confident of a robust economic recovery as measures ease.”

The 12-month outlook for activity among Scottish private sector companies improved for the fifth month in a row during March, with sentiment the strongest on record.

Anecdotal evidence linked optimism to the planned easing of Covid-19 restrictions amid the ongoing vaccine rollout, hopes of improved client demand and a solid economic recovery.

The report said Scottish service providers registered a much more robust level of confidence than manufacturers in March.

The March data highlighted a further decrease in staffing levels at Scottish firms.

“Panellists attributed the latest fall mainly to the non-replacement of voluntary leavers due to the pandemic, although there were some mentions of layoffs and redundancies,” said the report.

“That said, the rate of job shedding was the slowest since February last year and only fractional overall.

“Sector data highlighted a further divergence in March. Goods producers took on additional staff at a quicker rate, while services firms continued to trim workforce numbers.

“The level of outstanding business at Scottish companies continued to fall during March, amid reports that COVID-19 regulations and muted sales had allowed firms to direct resources to unfulfilled orders.

“The rate of backlog depletion was the slowest in the current 16-month sequence of falls and only marginal, however.

“A tenth straight monthly increase in average input prices was recorded in March.

“According to panellists, greater raw material costs, higher prices at suppliers, Brexit and Covid-19 were the main drivers of inflation. Moreover, the latest increase was the steepest since August 2018.

“At the sector level, goods producers recorded a much quicker upturn in costs than services firms.”