Scotland’s private sector recovery loses momentum as pandemic hurts

Scotland’s private sector recovery lost momentum last month with business sentiment hitting a four-month low amid lockdown uncertainty.

Monday, 12th October 2020, 7:25 am
Malcolm Buchanan, chair, Scotland board at Royal Bank of Scotland, said the latest PMI data highlighted slower growth of the Scottish economy, with business activity rising only marginally overall. Picture: Gary Baker
Malcolm Buchanan, chair, Scotland board at Royal Bank of Scotland, said the latest PMI data highlighted slower growth of the Scottish economy, with business activity rising only marginally overall. Picture: Gary Baker

However, firms remain confident that output will rise over the coming year amid hopes of a further recovery in demand, according to the latest Royal Bank of Scotland purchasing managers’ index (PMI) report.

September’s data highlighted a renewed fall in the level of new business at Scottish companies, following a solid uptick in the previous survey period. Panellists linked the moderate decline to “muted” demand conditions amid Covid-related measures and heightened uncertainty.

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Scotland was one of only two monitored UK areas to record a reduction in new business during September, alongside Northern Ireland.

The report’s future activity index posted above the crucial 50 threshold that separates growth from contraction for the fifth consecutive month during September, to signal overall optimism among firms with regards to output over the year ahead.

RBS said anecdotal evidence linked confidence to hopes of improved client demand and a potential economic recovery.

However, the level of positive sentiment dipped to a four-month low, reflecting concerns about the introduction of more stringent lockdown measures and the timing of any recovery.

The September data highlighted a further fall in workforce numbers across Scotland, extending the current sequence of job cuts to eight months.

Malcolm Buchanan, chair, Scotland board at Royal Bank of Scotland, said: “The latest PMI data highlighted slower growth of the Scottish economy, with business activity rising only marginally overall.

“Meanwhile, inflows of new work fell following an uptick in August, with survey respondents citing weak client demand due to stricter lockdown measures.

“These measures, although necessary, also dented firms’ confidence during September. Sentiment was still positive overall, but slipped to a four-month low. Meanwhile, job cutting continued, with the rate of reduction remaining marked.

“Nonetheless, data highlighted a good performance in the context of the rapid contractions seen in the spring. Weak client demand is a concern, but unsurprising with lockdown measures tightening. Hopefully, as in August, once the pent-up demand is released, the sector will move full throttle towards a recovery.”

A fourth successive monthly increase in cost burdens facing Scottish private sector firms was recorded in September.

Higher prices at suppliers, greater staff costs and additional pandemic-related expenditure were the main drivers of inflation, according to panellists. Moreover, the rate of increase accelerated from August and was sharp overall, RBS noted.

The PMI is compiled by IHS Markit from responses to questionnaires sent to a panel of about 500 manufacturers and service sector providers. The panel is stratified by detailed sector and company workforce size, based on contributions to gross domestic product (GDP). Survey responses are collected in the second half of each month.

Average charges levied by private sector firms in Scotland fell for the seventh consecutive month in September. According to panellists, firms had offered discounts in order to attract new business.

There was a renewed fall in average charges at the UK level last month, with the rate of charge deflation slightly quicker than in Scotland.

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