Scotland's private sector 'remained on growth footing' in September

Scottish private sector firms saw a further sharp uplift in business activity last month, according to new purchasing managers' index (PMI) data published today by Royal Bank of Scotland.

The lender’s seasonally adjusted headline business activity index – a measure of combined manufacturing and service sector output – posted 56.1 in September to signal a seventh straight monthly expansion in output, and one that was sharp overall.

The latest figure was down from 58.1 in August, however, and indicative of the slowest rate of increase for five months, as a sustained upturn in services was slightly offset by a renewed drop in manufacturing output. Overall new business continued to gain momentum, but saw a similar moderation in the rate of expansion, while cost burdens rose at the fastest pace for more than 13 years, and the rate of charge inflation hit a record high.

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The third quarter has witnessed one of the quickest expansions on record of the private sector, says Malcolm Buchanan of RBS. Picture: Gary Baker.

For the sixth time in as many months, inflows of new work to Scottish private sector firms rose, and panellists linked the latest uplift in new orders with strong client demand, in part due to the relaxation of lockdown restrictions. The pace of expansion in new business across Scotland was broadly in line with the UK average.

Private sector firms across Scotland maintained an optimistic outlook towards business activity over the coming year, attributed anecdotally to strong demand conditions, the easing of Covid-19 measures, and hopes of a sustained economic recovery. That said, sentiment dipped to an 11-month low, the second lowest across all monitored UK areas.

September data highlighted a sustained rise in Scottish private sector employment, stretching the current sequence of increases to six months, and the rate of job-creation accelerated to a four-month high. Scotland also registered the third-quickest increase in employment across the 12 monitored UK areas.

As has been the case since April, the level of outstanding business at Scottish companies rose, with material shortages and a lack of available staff cited by respondents as reasons for the latest increase.

Sector data highlighted divergent trends in September. Backlogs at goods producers rose further, while service firms saw the first drop in outstanding business since March.

Cost pressures

A 16th consecutive monthly rise in costs facing Scottish private sector firms was recorded in September, and greater material, fuel and wage costs, logistical issues, Covid-19 and Brexit were all cited as drivers of cost inflation. Moreover, the rate of increase was the fastest since July 2008.

At the sector level, goods-producers continued to see a far stronger rise in input prices than service-providers, although the rate of inflation at the latter still hit a 13-year high. Scottish private sector firms subsequently raised their average charges for the 11th month in a row last month.

Malcolm Buchanan, chair of the Scotland Board at RBS, said: “Scotland's private sector remained on a growth footing in September, with business activity rising further amid a sustained uplift in inflows of new work.

“Although the latest data does indicate a slight slowdown in growth, the third quarter as a whole nonetheless saw to one of the quickest expansions of the private sector on record and it remains in a strong position as we enter the closing months of the year.”

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