Service sector activity supports Scottish growth – Scottish Business News

LATEST Regional Growth Tracker data from the Royal Bank of Scotland pointed to a solid rise in private sector activity. Private sector firms across Scotland signalled a solid rise in activity at the start of the second half of the year. The rate of increase picked up from June, supported by a renewed expansion in the inflows of new work. In line with rising business requirements, firms also raised their employment figures at a quicker pace. Price pressures also intensified during July, as a sharper uptick in input costs fed through to higher charges.

The headline Business Activity Index registered above the 50.0 no-change threshold for a seventh month running in July. Ticking up to 52.7, from 51.9 in June, the latest reading signalled a solid start to the third quarter and was broadly in line with the broader UK trend. However, the uptick in private sector activity was again centred at service firms. Meanwhile, goods producers recorded a further drop in output.

Sentiment for the year-ahead outlook for activity remained strongly optimistic in July. Scottish surveyed businesses were more confident than in June, with both underlying sectors recording an uptick. Sentiment was driven by hopes of improving market conditions, growth in new customers, product diversification and plans of implementing new business processes.

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

“The Scottish private sector signalled a solid start to the second half of the year, backed up by a strongly performing service sector. Growth in the service sector was again able to mask the downturn at manufacturers, with service firms noting improving underlying demand trends. Moreover, optimism towards the year ahead outlook was firmly optimistic, as confidence levels strengthened on the month. Private sector employment also ticked up in July, the rate of job creation quickening from June. Meanwhile, inflationary pressures intensified during the latest survey period and could pose a concern to firms in the coming months.”

A fresh rise in new business was recorded across the Scottish private sector in July, with expansions now noted in five of the last six survey periods. However, in each case, growth was centred at the service sector, with businesses reporting stronger demand from existing clients. Meanwhile, goods producers posted a contraction for a sixteenth straight month.

When compared to demand conditions across the UK as a whole, Scottish firms underperformed. Moreover, of the 12 monitored UK nations and regions, sentiment were the second-least optimistic across Scotland, only slightly stronger than seen in Northern Ireland.

July data signalled an eighteenth consecutive monthly rise in staffing levels across the Scottish private sector in July. The rate of growth picked up from June’s 11-month low to signal a modest uptick. However, as has been the case since March, job creation was limited to service providers where strong demand trends was said to have supported hiring activity.        

Additionally, the rate of job creation measured for Scotland, slipped below the UK-wide average for the first time in 12 months.

Both service providers and manufacturers were able to keep on top of their workloads during July. Backlogs depleted sharply overall and to the greatest extent in one-and-half years. Of the 12 monitored tracked regions and nations, only Wales recorded a stronger rate of backlog depletion. Meanwhile, for the second month running, Northern Ireland was the only tracked area to record a rise in the level of unfinished work.

Scottish private sector firms noted increasing pressures stemming from inputs in July. In fact, the rate of inflation ticked up after hitting a 40-month low in June and surpassed the UK-wide average. Higher supplier and freight charges, plus wages and material prices were all said to have underpinned the uptick in costs.

Similarly, charges levied for Scottish goods and services were also raised at a slightly stronger pace in July. Higher input costs were highlighted as the primary driver of increased output charges. However, when compared to the remaining tracked UK regions and nations, charges were raised at the second-weakest pace across Scotland, with only the Northern Ireland recording the weakest uptick in output prices.