The Scottish private sector reported a further fall in total activity in January, according to the latest Royal Bank of Scotland Purchasing Managers Index (PMI) data.
However, the PMI report said business “expectations” across Scotland improved during January and recorded a six-month high.
“Optimism largely stemmed from anticipation of new projects and increased activity,” said the PMI report.
The Business Activity Index — a measure of combined manufacturing and service sector output — fell from December’s five-month high of 48.3 to 47.1 “signalling a quickened contraction in private sector output, and extended the current run of contraction to six consecutive months,” the report said.
The rising cost of living, supply chain disruptions and a slowdown in the housing market all contributed towards the latest downturn in activity.
The January data revealed that service firms led the decline, registering faster rates of reduction in both business activity and new orders compared to their manufacturing counterparts.
New business received across the Scottish private sector posted a further contraction in January.
“Moreover, the pace of decrease quickened from December’s three month low, signalling a sharp reduction in new work,” said the report.
“The downturn was led by a faster fall in new business received at service providers, while goods producers reported the softest decline in eight months.
“A slow housing market, transport strikes and squeezed disposable incomes were all in part blamed for the drop in new orders.
“Of the 12 monitored UK regions, Scotland registered the sharpest pace of contraction in incoming new business.
“After weakening for the second month running, business expectations across Scotland improved during January and printed a six-month high.
“Optimism largely stemmed from anticipation of new projects and increased activity.
“That said, the latest reading continued to post below the survey average as worries over the war in Ukraine, energy crisis, slowdown in the real estate sector and the cost-of-living crisis weighed on growth expectations.”
Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, said: “The start of the year revealed that the downturn in Scottish private sector activity that began last August was extended into 2023.
“Moreover, the latest decline in private sector activity accelerated. It seems unlikely that the sector will bounce back anytime soon as services firms were severely impacted by the depressed demand conditions and the current economic climate.
“The step back in client activity has also resulted in firms trimming their workforce numbers for the second month running. Alongside an ongoing drop in the level of unfinished work, a further reduction in payroll numbers can be expected.
“However, the latest figures indicate that perhaps the worst of inflation has passed. Nonetheless, the current rates of input price and output charge inflation are still elevated and can be detrimental to the health of the Scottish private sector.”