Scottish business activity continues to fall in November, according to latest Royal Bank of Scotland PMI – Scottish Business News

THE LATEST Royal Bank of Scotland PMI^® signalled a solid reduction in Scottish private sector activity in November. At 47.1, up from 46.5 in October, the Scotland Business Activity Index posted below the crucial 50.0 mark for the third month running. The decline in private sector activity reflected a sharp and accelerated fall in manufacturing output and a weaker reduction in services activity. The downturn in output was propelled by a stronger reduction in new orders, as underlying demand conditions worsened.

Nonetheless, firms continued to increase their workforce numbers in November and at the strongest pace in six months. This in turn led firms to further reduce their backlogs.

Inflows of new business fell solidly across Scotland in November, thereby extending the current run of decrease to five months. The rate of contraction quickened from October to the strongest in the aforementioned sequence. Panellists reported that waning demand and an uncertain economic environment weighed down on sales, especially across the manufacturing sector.

Meanwhile, only a fractional downturn was recorded in new business at the UK level.

Scottish private sector firms generally anticipated growth in business activity over the coming 12 months in November. Moreover, sentiment improved to a five-month high. Firms cited increased marketing plans and hopes of stronger demand, as well as stable interest rates and lower inflation. That said, confidence remained historically muted and much weaker than the UK-wide average. 

Despite shortfalls in demand, Scottish firms remained keen to raise their workforce numbers in November, with expansions noted in each of the past ten months. In fact, the rate of job creation quickened to a six-month high and was robust by historical standards. Successful replacement of leavers, expansion plans and expectations of growth in new orders were said to have underpinned the latest uptick.

Moreover, Scotland recorded the strongest rise in employment of all the 12 monitored UK regions and nations.

The sustained decline in new orders led to a further fall in backlogs across Scotland in November. The rate of depletion remained strong, despite easing since October. Firms also noted that improved availability of raw materials and the intake of additional staff drove the reduction in the amount of work outstanding. Work-in-hand has now fallen in 17 of the past 18 survey periods.

A universal decline in backlogs was recorded for all 12 monitored UK regions and nations in November. Though sharp overall, Scotland recorded the second-weakest reduction, behind London. 

Cost pressures edged up slightly in November, thereby stretching the current run of inflation to three-and-a-half years. The pace of inflation was rapid and historically elevated, albeit much softer than the record rates observed last year. Higher prices from suppliers and the war in Ukraine was said to have fed through to greater costs for input.

Of the 12 monitored UK regions and nations, only London recorded a faster rate of input cost inflation than Scotland.

Scottish private sector companies recorded a sharp rise in selling prices during November. While the rate of output charge inflation was the softest in three months, it remained historically strong. Firms raised their charges to cover the effects of inflation on their cost burdens.

A steep increase in charges was also reported across the UK, with the rate of growth slightly stronger than that seen in Scotland.

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

“Businesses across Scotland struggled to raise their activity as waning demand and growing market uncertainty hampered sales in November. Moreover, with expectations remaining historically muted, the downturn could continue into the new year.

“However, despite the setbacks private sector companies are facing, the labour market remains resilient. Employment levels expanded for the tenth month running in November. Moreover, growth in payroll numbers was noted across both the manufacturing and services sectors.”