The Scottish private sector economy continued to grow in May, according to the latest Bank of Scotland PMI.
It posted a reading of 52.2, compared to 55.5 in the previous month. Inflationary pressures remained strong overall, but were the weakest during 2011 so far.
Firms took on more staff at the fastest rate since February 2008, despite seeing only a marginal rise in the volume of incoming new business during the month.
Compiled by Markit for Bank of Scotland, the PMI report is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 600 private manufacturing and service sector companies.
Activity across Scotland’s manufacturing and services sectors rose for the fifth successive month in May. The rate of expansion was only slightly weaker than the long-run survey average, but the slowest in the current sequence. Manufacturing output and services activity rose at broadly similar rates during the latest period.
Driving the moderation in output growth in May was a much weaker rise in new business levels. Latest data signalled only marginal gains in new contracts in both manufacturing and services. The overall rise in Scotland compared favourably with declines in Wales and Northern Ireland, but was weaker than the rates of growth shown in all English regions except for the South West.
The report said lacklustre rise in new business during May led to a further decline in the volume of outstanding work held at private sector companies. Backlogs have declined in every month since September 2007. That said, the latest rate of contraction was slower than the long-run trend.
Despite the slower rise in new work, private sector companies added to their workforces in May. Moreover, the rate of employment growth was the fastest since February 2008. Latest data indicated workforce growth in both manufacturing and services.
Cost inflationary pressures remained strong in the context of historic survey data in May. Input prices continued to rise sharply, more so in manufacturing than services, even though the overall rate of inflation slowed to a five-month low. Input cost inflation also remained greater than the UK-wide average.
The easing in input price inflation led to a slower increase in average prices charged for Scottish goods & services in May. Output price inflation remained greater than the long-run trend, but was the slowest since last December. In contrast to the trend for input prices, Scottish firms’ charges rose at a weaker rate than the UK average in May.
Donald MacRae, chief economist at Bank of Scotland, said: “The Scottish private sector economy enjoyed a fifth consecutive month of growth in May