RBS: Scottish private sector activity stagnates at end of 2019

Business activity across Scotland’s private sector was unchanged during December following growth in November, according to the latest Royal Bank of Scotland PMI.

RBS: Scottish private sector activity stagnates at end of 2019

Manufacturers recorded a seventh consecutive contraction in output, whilst services activity rose only marginally.

Also weighing on operating conditions was a renewed decline in incoming new business, which fell mildly overall amid reports of weak demand conditions and continued uncertainty. Meanwhile, firms’ expectations remained historically subdued, despite sentiment reaching a six-month high.



The seasonally adjusted headline Royal Bank of Scotland Business Activity Index - a measure of combined manufacturing and service sector output - fell from 50.9 in November to 50.0 in December, to signal no change in Scottish private sector activity at the end of 2019. Sector data highlighted further divergence, with a sharp fall in output in the manufacturing sector outweighing marginal services growth.

December data signalled a reduction in order book volumes, as has been the case in four of the past five months. Panellists associated the fall with weak client demand. The rate of decline was only mild, however.

By sector, manufacturing drove the overall decline, with order book volumes falling at the sharpest rate since March 2009. Meanwhile, service providers registered a back-to-back uptick in new business, albeit with the rate of growth easing from November.

With demand subdued, businesses were able to focus on clearing backlogs in December. Outstanding business declined following a stable trend in November, although the rate of backlog depletion was only marginal overall. Of the 12 monitored UK areas, Scotland reported the softest rate of backlog depletion.

Meanwhile, private sector firms in Scotland reported no change in workforce numbers during the latest survey period. Sector data highlighted divergence, as manufacturers recorded a sixth consecutive reduction in employment, whilst services firms registered a slight increase in staffing levels.

As has been the case in each month since early-2016, firms recorded a rise in input prices in December, amid higher utility costs and unfavourable exchange rates. The increase was the fastest since June and sharp overall.

At the same time, average selling prices rose during December, with firms linking the uptick to the pass-through of higher input prices to clients. The rate of charge inflation was the softest since September and only mild, however.

Firms remained confident output will rise over the coming year, with sentiment reaching a six-month high. That said, expectations remained subdued in the context of historical data.

RBS: Scottish private sector activity stagnates at end of 2019

Malcolm Buchanan

Malcolm Buchanan, chair, Scotland board, Royal Bank of Scotland, said: “Private sector activity in Scotland stagnated at the end of 2019, with the manufacturing downturn continuing for the seventh month running to cancel out marginal services growth. Weighing on activity was a renewed contraction in order book volumes, which fell mildly amid reports of weak demand conditions. Moreover, the reduction contrasted negatively with the trend across the UK as a whole, where overall new business rose slightly.

“Meanwhile, sentiment regarding activity over the next 12 months reached a six-month high, but expectations remained historically subdued with some firms noting persistent uncertainty is still clouding the outlook.”

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