Economy stagnant as services weaker

The headline output index for Scotland’s private sector economy fell from 51.7 in February to 50.1 in March on a seasonally-adjusted basis. This signalled broad stagnation, with the latest reading only marginally above the 50 no-change mark. February’s reading had signalled modest growth.

The private sector economy in Scotland once again performed significantly worse than that in the UK as a whole in March, according to the PMI report.

The UK output index rose from 53.8 in February to 54.9 in March to signal an acceleration of growth, albeit the pace of expansion remained adrift of that signalled by a reading of 55. 2 in January.

Employment in the Scottish private sector economy rose for the first time in three months in March, the survey shows, but the increase was only marginal.

The output index for the Scottish manufacturing sector fell from 57.3 in February to 55 in March. Although this signalled a deceleration of growth, the latest reading still points to a solid pace of expansion.

Bank of Scotland said: “Anecdotal evidence suggested that better business conditions and an upturn in the oil and gas sector were factors behind positive sentiment.”

However, Scottish manufacturers signalled growth in overall new orders had ground to a halt. They did, nevertheless, record a modest rebound in new export orders in March, after a fall in February.

And manufacturers signalled modest overall growth in employment in the sector in March.

The business activity index for the Scottish services sector fell from 50.3 in February to 48.9 in March.

Bank of Scotland said: “Political and economic uncertainty, alongside a low oil price, were reasons given by panel members as factors behind the contraction.”

The survey showed very marginal growth in service sector staffing.

Bank of Scotland said the PMI report signalled “continued steep inflation” of input costs, albeit the lowest in six months.

It noted firms, particularly manufacturers, had commonly reported unfavourable exchange rates had led to an increase in input costs. Higher wages were also reported to have pushed up operating expenses.

Bank of Scotland added: “Firms continued to respond to higher operating costs by increasing their own charges. Although the degree of inflation was the lowest of the year so far, it remained historically marked.”

Separately, a Grant Thornton survey shows confidence levels in Scotland’s business community have stabilised, but remain below the UK-wide and eurozone averages.

The survey found 15 per cent of Scottish business leaders are confident about trading conditions over the next 12 months. This is up from 14 per cent in the final quarter of last year, but adrift of 20 per cent UK-wide. In the eurozone, a much greater 39 per cent of business leaders are confident about trading conditions over the coming year.

The survey shows about half of Scottish business leaders are confident of a rise in turnover during the next 12 months. This is down from 65 per cent expecting turnover growth on a 12-month view in the final quarter of 2016.

Grant Thornton said: “This quarter’s data reflects the ongoing challenging economic and political conditions facing Scotland as uncertainty remains over the country’s future within both the United Kingdom and the European Union.”

Debbie Mayor, head of international at Grant Thornton in Scotland, said: “What the Scottish market-place really needs is clarity from political leaders. The country depends heavily on access to the single market-place for everything from exporting to employing skilled EU workers. A potential hard Brexit throws this into doubt.”

She cited a need for a “clear action plan that places collaboration and sustainability at its heart to mitigate some of the potential long-term damage”.