Private sector activity growth remains driven by services firms, according to latest Royal Bank of Scotland Growth Tracker – Scottish Business News

LATEST Regional Growth Tracker data from the Royal Bank of Scotland signalled sustained private sector growth. The Scottish private sector signalled sustained and solid growth in activity midway through the third quarter. The economy was again, however, driven by the service sector, masking a downturn at manufacturers. Service firms also revealed a further improvement in demand trends, though data did indicate a slight cooling. As a result, overall growth in new orders eased on the month.

The headline Business Activity Index remained unchanged from the month prior and printed 52.7 in August. Expansions in activity across Scotland have now been noted in each month this year, with growth remaining skewed towards service providers.

Expectations for the year ahead outlook for activity continued to strengthen across Scotland’s private sector in August. The degree of confidence was the highest in one-and-a-half years and historically strong. Firms expect that market conditions and a lax borrowing climate will support growth in the year ahead.

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented:

“The Scottish private sector continued to expand on the back of solid growth in activity observed across its service firms. Meanwhile, the manufacturing sector remained suppressed as deteriorating underlying demand trends continued to weigh down on production. While the service sector has been pivotal in supporting growth in private sector activity since the start of the year, there were some signs of cooling demand during August. Growth in new orders softened, and services employment also ticked up at a softer pace. That said, firms remain optimistic that growth in business activity will be sustained in the coming 12 months, with expectations across the Scottish private sector hitting an 18-month high. Meanwhile, business expenses increased at one of the weakest paces since February 2021.”

Sebastian Burnside, Royal Bank Chief Economist, commented:

“Our latest Growth Tracker report showed business activity rising across all 12 UK nations and regions in August, representing an improvement from the ten that recorded an expansion in July. Renewed upturns were seen in the East Midlands and Wales, although it was Northern Ireland that remained the brightest spot in terms of outright growth.

“Business optimism generally softened in August, following a post-election bounce in growth expectations in most areas in July. Nevertheless, sentiment towards future activity remains positive across the board, which is helping to support labour market conditions.       

“Alongside broad-based growth in business activity, it was encouraging to see price pressures ease in most areas, in what will be very welcome news for the Bank of England’s policymakers. This will be something to watch going forward as we look to assess the direction of travel of inflation and the timing of further interest rate cuts.”

Performance in relation to UK

A second monthly rise in new business received at Scottish private sector companies was recorded in August. Growth was again limited to service firms, who noted that introduction of new products, increased marketing and additional activity from existing clients supported the uptick. The rate of growth cooled on the month and signalled only a slight rise in activity, however.

Moreover, of the 12 monitored English nations and regions, only the West Midlands recorded a softer uptick in new business than Scotland.

Compared to the UK-wide trend, growth forecasts across Scotland remained notably subdued.

While private sector companies across Scotland continued to raise their staffing levels for a nineteenth successive month in August, the latest uptick was the third-weakest in the current sequence of growth. Again, job creation was driven by an uptick at service providers where improving demand trends encouraged the intake of additional staff. Meanwhile, manufacturers continued to pare back their payroll numbers.

Excluding the West Midlands and East Midlands, where contractions were again noted, Scotland registered the softest rise in workforce numbers of the remaining monitored UK regions and nations.

Firms based in Scotland reduced their backlogs during August. Extra staffing capacity at service providers, and falling new order intake at manufactures, underpinned the latest downtick. The rate of depletion was weaker than that seen in July and matched that observed for the UK as a whole.

August data revealed a rapid rise (one that surpassed the UK-wide average) in business expenses across the Scottish private sector. Higher commodity prices and wages, the latter especially stemming from the service sector, was said to have pushed up cost burdens. That said, the respective seasonally adjusted index slipped back below the long-run average and was the second lowest reading in three-and-a-half years.

However, the rate of charge inflation trended above the historical average, with Scottish private sector firms raising their selling prices at a stronger pace. Firms often attributed higher charges to growing underlying cost burdens.

Compared to the UK as a whole, charges levied for Scottish goods and services rose at a slightly weaker pace.