Scottish firms see steepest cost hikes on record as growth wanes

Surging energy costs and rising wage bills saw Scottish firms suffer the fastest pace of cost hikes on record last month.

RBS's Malcolm Buchanan said it had been another positive month of growth for Scottish businesses, but cost rises are putting increased pressure on firms.

In response, companies were forced to raise their own prices to the greatest extent in the history of Royal Bank of Scotland (RBS)’s monthly PMI report.

The latest snapshot also showed that although business activity levels have continued to rise, growth momentum is slowing down.

RBS’s seasonally adjusted headline Business Activity Index - a measure of combined manufacturing and service sector output - posted 55.9 in November to signal a ninth successive monthly rise in output.

However, the figure was down from the 56.3 figure seen in October, pointing to a slight loss of growth momentum.

Malcolm Buchanan, chair of RBS’s Scotland board, said overall it had been another strong performance for the Scottish private sector with business activity and new work increasing further.

“There were some signs that momentum has waned slightly, however, as growth of activity eased to the slowest since April,” he said.

“At the same time, supply issues, combined with rising energy, fuel and wage bills added further to firms' inflationary woes. Input prices rose at a record pace, with firms increasing their charges to the greatest degree on record as a result.”

Although Buchanan said price pressures and supply delays remain a key cause for concern, they are still “yet to weigh significantly on the performance of the private sector”.

The level of new business reported by firms rose for the eighth month in a row, amid reports of strong demand helped by a loosening of Covid-19 restrictions. The rate of expansion eased slightly on the month, but RBS said it was still “among the quickest on record and sharp”.

At the sector level, services firms reported a much steeper upturn in new work than manufacturers.

On jobs, the month saw a further uplift in workforce numbers, extending the positive run of increases to eight months. Companies were taking on additional staff amid greater activity requirements and a strong pipeline of new work, according to respondents. Although the slowest since April, the rate of job creation was amongst the fastest on record and sharp. Service providers and manufacturers registered broadly similar rates of growth.

Input prices rose for the 18th month in a row with factors including transport issues, supply shortages, Brexit and Covid-19 all cited as being among the key drivers.

However, the rate of increase in cost burdens in Scotland was the weakest across the 12 areas of the UK the report monitors.

Firms continued to pass greater costs through to clients in November. Average charges increased for the 13th time in as many months, with the latest rise the quickest on record and rapid overall.

Manufacturers continued to increase their charges at a much faster pace than services firms, although both sectors saw the rate of inflation accelerate on the month.

Looking ahead, Scottish private sector firms remained optimistic about activity over the next 12 months in November, with the level of sentiment ticking up to a four-month high. Respondents cited strong client demand and hopes of a continued rebound following the loosening of pandemic restrictions.

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