20th April 2018

Bank of Scotland PMI: private sector output expands at fastest pace in five months

Scottish private sector companies concluded the first quarter of 2018 with a renewed increase in output. Higher business activity was underpinned by a moderate rise in new orders. Encouraged by the upturn in demand, firms hired additional staff to cope with the greater workload, despite capacity pressures easing for a thirty-ninth straight month.

The seasonally adjusted headline Bank of Scotland PMI- a single-figure measure of the month-on-month change in combined manufacturing and services output - returned to expansionary territory in March, posting 50.8 compared to 49.5 in February. This marked the strongest (albeit modest overall) rise in private sector activity since October 2017.

New orders placed with Scottish private sector firms rose moderately in March. According to panellists, new client wins and higher demand from abroad contributed to greater new business inflows. In turn, additional staff were recruited to enhance operating capacity.

Despite the renewed increase in new business inflows, backlogs of work continued to be cleared during March, continuing a trend which has been apparent since January 2015. That said, the rate of reduction in unfinished work softened overall.

Another month of sharp input cost inflation was observed in March. Panellists noted higher food, fuel and labour costs. In response, output prices were raised to partially offset profit margin erosion. The rate of increase in selling charges was the fastest since May 2017.

Finally, an optimistic outlook towards activity over the coming 12 months was retained in March. Positive sentiment was attributed to planned company expansions, new product launches and forecasts of new business wins.

Fraser Sime, Regional Director, Bank of Scotland Commercial Banking comments “Scottish private sector output increased at the fastest rate in five months during March. Although a mild pace of expansion, it was underpinned by the first activity upturn in the services sector since October last year.
Employment returned to growth amid a renewed inflow of new work. Survey respondents gained confidence from the positive business conditions, with optimism strengthening.
In turn, firms were more willing to raise selling charges and share greater cost burdens with their clients. Notably, firms mentioned higher wages had driven up operating expenses in March.”