BANK OF SCOTLAND PMI: GROWTH OF SCOTTISH PRIVATE SECTOR ACTIVITY STRENGTHENS IN DECEMBER

  • Fastest rise in output for six months
  • Growth driven by increase in new business wins
  • Slight drop in output prices

16-1-2013 — /europawire.eu/ — Scotland’s private sector economy ended 2012 on a sound footing, according to Bank of Scotland’s PMI report for December. Output levels increased at the fastest rate since June, boosted by a return to growth in new business. Employment rose over the month, contrasting with a slight decline UK wide. Competitive pressures led businesses north of the border to reduce their output prices, despite there being another substantial increase in average input costs.

The Bank of Scotland PMI read 51.2 in December, its highest mark for six months and indicative of moderate growth in private sector activity. That compared with a reading of 50.3 in November, and showed a better overall performance than for the total UK economy, which saw stagnation in the
final month of the year. Behind the expansion in output north of the border was an accelerated rise in activity at service providers, with goods production decreasing further.

The level of new work placed with businesses operating in Scotland increased for the first time in six months in December. Growth was the most marked since April, although still only modest relative to that registered in the first quarter of 2012. New export orders received by manufacturers meanwhile rose slightly, having fallen continuously on a monthly basis since June.

Scotland’s labour market benefited from the improved trends in output and new orders in December, with businesses recording the fastest rate of job creation for five months.

December data signalled a solid and accelerated decrease in backlogs of work at private sector companies in Scotland. The latest reduction was the sixteenth in consecutive months, and the sharpest since July.

Operating costs for Scottish businesses continued to rise at a marked rate in December, and one that was faster than in all other UK regions monitored by PMI data bar Northern Ireland. Anecdotal evidence suggested that an increase in energy prices was one key factor adding to cost pressures. That said, the overall rate of inflation was slightly weaker than in each of the previous three months.

There was a contrasting trend in output prices in December, which fell on average for the first time in five months amid increased competition and efforts to generate new business wins.

Donald MacRae, Chief Economist at Bank of Scotland, said: “The PMI for December showed a welcome rise to its highest level for six months indicating a return to moderate growth in the Scottish economy. The increase in new business and the rise in employment are particularly encouraging. The pickup in new export orders should enable a return to growth in the manufacturing sector in the coming months. These results give hope that the Scottish economy has exited the recent period of slowdown and is entering 2013 in growth mode.”

Component Summary
Output / Business Activity
The level of business activity at Scottish service providers continued to increase during December, stretching the current sequence of expansion to two years. Growth was the strongest since July, although still down slightly on the long-run series average. Anecdotal evidence partly linked the rise in output to increased intakes of new business.

Factory output in Scotland decreased again in December, extending the ongoing sequence of decline to six months. After stabilising in November at a marginal rate, the pace of contraction in manufacturing production picked up slightly in the final month of the year. Lower demand leading to a further (albeit slower) decrease in new orders was the primary reason for reduced production levels, according to panellists.

New Business
New business placed with Scottish service providers increased for the fourth month in succession in December. Furthermore, the rate of growth accelerated from November’s modest pace, and was the fastest since April. Where a rise in new work was recorded, this was largely linked by panellists to new client wins.

New orders placed with Scottish manufacturers decreased at a much slower pace in December than was the case during the preceding month. In fact, the rate of contraction eased to the weakest since May and was only marginal overall.

Backlogs
Despite a period of sustained new order growth, backlogs of work at service providers operating in Scotland decreased for a second straight month during December. The rate of decline remained only slight, however. A number of firms reported the completion of several large projects over the month.

December data pointed to a sharp and accelerated decrease in the amount of outstanding business at Scottish manufacturers. The rate of decline was the fastest in three-and-a-half years. Of the businesses that noted a decline in work-in-hand over the month (37%), a number linked this to a weak trend in incoming new orders.

Input prices
Cost burdens facing services firms in Scotland continued to increase at a marked pace in December. Foodstuffs, fuel, labour and utilities were all highlighted by the survey panel as key sources of inflationary pressure. That said, the overall rate of input cost inflation dipped for the second time in the past three months.

Purchasing costs in the Scottish manufacturing sector increased on average during December, continuing the trend seen in all but one month since mid-2009. Energy and raw materials were highlighted by panel members as up in price since the preceding month. The overall rate of inflation dipped slightly
from November’s seven-month high, but remained above the average recorded over the year.

Output prices
In contrast to the upward trend in costs in the sector, prices charged by service providers north of the border decreased during December. The decline was the first in the past six months, albeit only marginal. Competition among businesses aiming to win new orders was the predominant reason for the decrease in average output prices, according to the latest anecdotal evidence.

There was broadly no change in average factory gate prices in December, following a marginal increase during the previous month. Similar to their counterparts operating in the service sector, Scottish manufacturers cited competition as the main factor restricting pricing power.

Employment
Alongside a faster increase in business activity levels at services firms, the rate of job creation in the sector quickened during the final month of the year to the sharpest since August. Higher employment has now been recorded in each of the past seven months.

In accordance with lower production requirements and cost caution, employment across Scotland’s manufacturing sector fell further during December. That was the fifth straight month-on-month decrease in staffing numbers at goods producers. The rate of net job losses was sharper than in the previous survey period, although still only modest overall.

Notes to editors
The Bank of Scotland PMI is compiled by Markit for Bank of Scotland and is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies. The panel has been carefully selected to accurately replicate the true structure of the Scottish economy.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and
subsequently revised data are available to subscribers from Markit. Please contact economics@markit.com.

About Bank of Scotland
Bank of Scotland is part of Lloyds Banking Group, the UK’s largest retail bank and Scotland’s largest financial services employer. Established in 1695, Bank of Scotland is the UK’s oldest surviving clearing bank. Our goal is to be the best financial services provider in Scotland. We believe this means we must build a leadership position not on the basis of scale but on the foundations of reputation and recommendation.

About Markit
Markit is a leading global financial information services company with over 2,500 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most
significant institutional participants in the financial marketplace. For more information, see www.markit.com.

For further information, contact:
Zoe Redhead, Bank of Scotland Press Office
Tel: 0131 655 5405 / 07809 551491
Email: zoeredhead@bankofscotland.co.uk
Web: www.lloydsbankinggroup.com/media.asp

For technical enquiries, contact:
Phil Smith,
Markit
Economist
Tel: 01491 461 009
Email: phil.smith@markit.com

 

Compiled by Markit for Bank of Scotland, this report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies. The panel is carefully selected to accurately replicate the true structure of the Scottish economy.

The intellectual property rights to the Bank of Scotland PMI provided herein is owned by Markit Economics Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit’s prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers’ Index® and PMI® are registered trade marks of Markit Economics Limited. Markit and the Markit logo are registered trade marks of Markit Group Limited.

 

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