The Scottish private sector registered its fastest expansion in nine months with another strong performance in March, according to the latest Royal Bank of Scotland Purchasing Managers Index (PMI) report.
The seasonally adjusted headline Royal Bank of Scotland Business Activity Index posted 58.4 in March, rising from February’s 55.5 and signalling the fastest expansion in nine months.
“The upturn was driven by a sharp increase in business activity at the service sector, as manufacturing output fell for the third time in four months,” said the report.
“Workforce numbers across the private sector also grew, with the current sequence of job creation extending to a year.
“However, supply bottlenecks, material scarcity, rising energy and fuel prices and Russia’s invasion of Ukraine led to record increases in both input costs and output prices.
“Scottish private sector firms indicated a further acceleration of new business inflows in March, extending the current sequence of expansion to a year.
“The latest uplift in new orders was the sharpest in four months and was driven exclusively by the service sector as new manufacturing orders fell.
“Where an increase was reported, panel members commented on stronger client demand and greater optimism amid the easing of pandemic restrictions.
“Optimism towards the coming year remained strong in March across Scotland and registered above the long-run survey average.
“Expectations of economic growth as businesses recover from the pandemic supported the positive outlook, according to anecdotal evidence …
“Scotland’s private sector registered a twelfth straight monthly rise in workforce numbers during March.
“Staffing levels increased amid growing workload pressures and in preparation for a rise in business requirements in months ahead, according to surveyed firms …
“Adjusted for seasonal factors, the Outstanding Business Index indicated a further rise in unfinished business across the Scottish private sector.
“Anecdotal evidence indicated that challenges in recruiting additional staff, combined with rising new orders, led to increased pressure on capacities. That said, the rate of backlog accumulation weakened slightly.
“Cost pressures faced by Scottish private sector companies remained steep in March, with the overall rate of input price inflation reaching a fresh record high.
“By sector, manufacturers reported a quicker increase than services firms.
“Respondents highlighted a variety of contributing factors such as increased material and energy prices, ongoing shortages, Brexit and the invasion of Ukraine.
“However, the rate of input price inflation in Scotland did register marginally slower in comparison to the UK average.
“Private sector companies in Scotland reported a seventeenth monthly rise in output charges in March.
“In fact, the respective seasonally adjusted index hit a survey high and signalled a sharp increase in selling prices.
“According to panellists, output charges were raised in line with higher input costs. Overall, the rate of inflation registered broadly in line with that recorded for the UK as a whole.”
Malcolm Buchanan, Chair, Scotland Board, Royal Bank of Scotland, said: “March data revealed a continued improvement across the Scottish private sector.
“The ongoing pandemic recovery and the resulting boost to client confidence supported activity and demand conditions.
“Crucially, however, trends diverged by sector as sharp growth in output at services firms managed to offset a slight contraction in manufacturing production.
“Despite strong growth overall, supply-side issues and substantial inflationary pressures persisted, with the impact most noticeable across the manufacturing sector.
“However, services firms saw a record surge in costs in March amid soaring energy and fuel prices, which firms continued to pass on to clients.
“Given the current state of play with regards to inflation, the downside risks to the demand-side of the economy have intensified.
“But it was encouraging to see strong business sentiment, with firms optimistic for growth opportunities if the COVID-19 recovery continues.”