Warning as business cost rises hit decade high

Scottish businesses have been hit by a further surge in costs as activity levels continue to improve, according to new data.

The latest Royal Bank of Scotland (RBS) purchasing managers' index (PMI) report found that private sector output rose sharply in July, signalling a fifth straight monthly increase. Employment also rose for the fourth month in a row.

However, input price inflation rose at the fastest level since January 2011, which was blamed on increases in utility, fuel, staff and material costs.

The seasonally adjusted headline RBS business activity index – a measure of combined manufacturing and service sector output – posted 57.5 in July. However, that was down from 58.4 in May as some momentum was lost due to a noticeable slowdown in manufacturing output growth.

RBS' Malcolm Buchanan said the figures showed Scotland's private sector was continuing to recover strongly. Picture: contributed.

Inflows of new work continued to rise in July, extending the current run of expansion to four months. The easing of lockdown measures, resumption of international travel, and stronger client confidence boosted demand, according to survey respondents. The rate of growth in new work eased further from May's peak record, but was still among the quickest in the survey's history.

Additionally, sentiment improved on the month and was the seventh-strongest on record, albeit still weaker than in the February-May period of this year.

Meanwhile, inflationary pressures intensified further, as costs rose at the sharpest rate for ten years. As a result, companies increased their average charges to the greatest degree in the series history.

Malcolm Buchanan, chair of RBS’ Scotland board, said: “The Scottish private sector recorded another strong performance in July. Business activity rose again, with the rate of increase close to the survey record, despite easing amid slower manufacturing growth. Inflows of new work too remain strong as looser Covid-19 restrictions continue to bolster demand.

"The continued recovery again bought with it intense inflationary pressures, however. Costs rose at the fastest pace for over a decade, with companies increasing their charges to a record degree as a result. Inflationary pressures will remain a key concern as the recovery progresses, but firms remain confident of a sustained rebound over the next year.”

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