RBS PMI: Service sector lifts Scottish economy during April

Malcolm Buchanan

The latest Royal Bank of Scotland PMI also identified a similar trend in new orders, although employment rose in both sectors in April.

Overall, firms expect activity levels to increase over the coming year, but the degree of confidence slumped to its lowest in two-and-a-half years.

The seasonally adjusted headline Royal Bank of Scotland PMI increased to 51.0 in April, from 49.6 in March, signalling a return to expansion in private sector output. On closer inspection however, it was solely driven by a renewed upturn in the services sector, as manufacturing production declined. While service providers mentioned improvements in demand, manufacturers reported weakness in the global goods-producing market.

Nonetheless, the overall rate of private sector growth in Scotland was broadly in line with that recorded for the UK as a whole.

In line with the trend in business activity, service sector order books supported an overall increase in demand during April. The rise was only mild, however, as reduced manufacturing sales due to uncertainty restricted the expansion. While workloads increased in Scotland, UK-level data indicated a fourth successive monthly deterioration in demand.

Despite the divergent output and demand trends between manufacturers and service providers, both expanded employment in April. While the rise was stronger at service providers, manufacturers posted a revival to job creation following a decline in March. This led to the aggregate rate of employment growth strengthening to a six-month high.

Enhanced operating capabilities resulted in a further month of reduction in backlogs of work across Scotland’s private sector. That said, the rate of depletion was only mild and the softest seen across the current seven-month sequence of declining outstanding business.

In line with reports of greater transport and staff costs, as well as price hikes from suppliers, overall input expenses increased in April. The rate of inflation quickened to a four-month high and was sharp overall. Of the 12 monitored UK areas, only Northern Ireland observed a faster rise in costs than Scotland. In response, selling charges were increased at a stronger pace.

Expectations towards future output were positive in April at both manufacturers and service providers. However, the degree of optimism eased to its weakest since October 2016. Some firms indicated that economic uncertainty, particularly surrounding Brexit, remained of concern.

Malcolm Buchanan, chair, Scotland board, Royal Bank of Scotland, said: “At first glance, latest survey data for Scotland revealed an improvement in economic conditions, but upon closer inspection, we see that the upturn in April was solely driven by the service sector, as manufacturing weakness continued into Q2.

“While service activity was given a boost by a small revival in demand, manufacturing output continued to lag as order book volumes shrank, with economic uncertainty and a sluggish global goods-producing market weighing on manufacturers.”

“Subsequently, firms recorded a cautious year-ahead outlook, with business confidence at a two-and-a-half-year low in April.”