Scots private sector activity rises, driven by services

Judith Cruickshank of RBS

The latest Royal Bank of Scotland purchasing managers’ index (PMI) has revealed a renewed rise in business activity across the Scottish private sector at the start of the year.

At 51.7, up from 49.4 in December, the index signalled that private sector output expanded for the first time in six months.

The upturn was solely reliant on the gains made in the service sector, while manufacturers reported a further sharp reduction in production volumes.

The Scottish labour market remained resilient, with employment now rising for a year. However, job creation was limited to the service sector.

“The service sector benefited from improved demand conditions, and reported a second consecutive monthly rise in new orders,” said the report.

“However, manufacturing firms struggled to drive sales in the latest survey period. The opposing pull of the sectors meant only a fractional fall in overall new orders.

“Reflective of activity and new order growth, only the service sector raised its staffing levels in January, and that too at an accelerated pace.

“Employment levels fell at manufacturers for the first time in four months.

“A seventh consecutive monthly fall in new orders was recorded across Scotland in January.

“The decrease resulted from a sustained and sharp fall in new factory orders.

“However, the downturn moderated, with the rate of decrease the weakest since last July and fractional overall.

“The uptick in the respective seasonally adjusted index was driven by a stronger rise in inflows of new business at service providers.

“Firms attributed this to improvement in demand conditions, new client wins and increased advertising.”

Scottish private sector firms remained confident regarding the year-ahead outlook in January.

Hopes for improvement in business conditions and increased marketing plans were said to have underpinned expectations.

“Despite continued weakness in new orders, the Scottish labour market remained resilient, with employment now rising for a year,” said the report.

“However, job creation was limited to the service sector. Here, surveyed businesses noted that planned growth and anticipated orders led to stronger recruitment drives. Meanwhile, goods producers registered a fresh decline in staffing levels for the first time in four months.

“Of all the monitored areas, only London surpassed Scotland by signalling the strongest uptick in employment during January.”

Continuing the trend which began in June 2020, cost burdens rose across the Scottish private sector in January.

The rate of inflation quickened from the recent low in December to a five-month high and was substantial overall. Rising fuel, energy and salary costs, as well as increased prices from the suppliers, were said to have pushed up input costs.

Prices charged by Scottish private sector companies rose at a “historically sharp and slightly accelerated pace” at the start of 2024.

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, said: “The Scottish private sector recorded an uplift in activity at the start of the year.

“The upturn was the first seen in six months and solid overall.

“However, growth was imbalanced, centred solely at service providers who have shown resilience amid a subdued economic climate. Meanwhile, the manufacturing sector reported a further sharp deterioration.

“Going forward, Scotland’s private sector maintains a healthy outlook for output in the coming 12 months.

“However, elevated inflation and interest rates as well as lingering economic uncertainty could undermine growth prospects.”