Scotland's private sector shrinks at fastest pace since August amid 'economic challenges and feeble demand' - RBS

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The Scottish private sector reported a deepening contraction in output last month, according to the latest Royal Bank of Scotland purchasing managers’ index (PMI) data published today.

The lender said the headline business activity index ticked down to 43.9 in November from 45.8 in October, seen as signalling the fastest decrease in the current series of reduction that began in August. New business placed across Scotland's private sector fell “sharply” to 43.3 on the back of the likes of lower market activity, the cost-of-living crisis, rising borrowing costs, and growing economic uncertainty resulting in delayed-decision making.

The picture was brighter in terms of confidence, and the future activity index scored 55.1, but was still seen as showing muted expectations for the next year, and weakened from October's three-month high, posting well below the historical average, and far below the UK-wide level.

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Looking at the export climate, RBS found that this continued to deteriorate in November, and the Scotland Export Climate Index – calculated by weighing together national PMI output data according to their importance to manufacturing exports of Scotland – fell to 47.3. Furthermore, for the first time since April 2020, all of Scotland's top five export markets reported a fall in output, with the Netherlands registering the sharpest downturn at 43.2 followed in order by the USA, Germany, China and France.

Payroll numbers across Scotland's private sector firms however increased, with the employment index settling at 51 extending the run of job growth to 20 months. It comes after RBS last week published its latest Report on Jobs survey, finding that hiring activity fell across Scotland again in November amid greater economic uncertainty and strong cost pressures.

Today’s PMI report showed that levels of outstanding business fell across Scotland, with the relevant index 45.4, and according to anecdotal evidence, completion of contracts and a drop in sales were key factors. Input prices inclined rapidly to notch up a score of 75.4, and firms blamed the latest increase in average cost burdens on energy prices, wages, higher shipping costs and the cost-of-living crisis, said RBS. Charge inflation entered its 25th month across Scotland, with the prices charged index reaching 62.7. The pace of inflation further intensified from September's recent low, signalling the fastest rise in five months and mirroring the upturn in average costs burdens, but was “marginally” weaker than the level recorded for the UK as a whole.


Judith Cruickshank, chair of the Scotland board at RBS, said: "The latest survey data signalled a stronger contraction across the Scottish private sector during November, as demand waned amid market uncertainty and the cost-of-living crisis. As a result, both activity and incoming new business fell as sharpest rates in the current four- and five-month sequences of reductions.

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Inflows of incoming new business continued to decline in November, says RBS (file image). Picture: Andy Buchanan/AFP via Getty Images.Inflows of incoming new business continued to decline in November, says RBS (file image). Picture: Andy Buchanan/AFP via Getty Images.
Inflows of incoming new business continued to decline in November, says RBS (file image). Picture: Andy Buchanan/AFP via Getty Images.

"Adding further strain on the sector was the continued intensification of price pressures. After cooling over the summer, input price inflation again accelerated in the fourth and final quarter of the year. Additionally, rates charged by private sector firms also increased at a quicker rate during November as firms tried to recoup costs. Overall, the penultimate month of the year pointed to confidence among private sector firms registering less upbeat than that seen in October, as economic challenges and feeble demand weighed on expectations."

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