While the Scottish private sector economy returned to growth during the first month of 2011, it is now facing growing inflationary pressures.
However, rates of expansion of both activity and new orders signalled by the latest Bank of Scotland PMI report were only modest.
The return to expansion was signalled by the Bank of Scotland PMI – a seasonally adjusted index monitoring activity across Scotland’s manufacturing and service industries – rising from 36.9 in December to 52.9 in January. Although this marked the strongest increase since last August, when averaged over December and January the index posted a reading below the 50.0 no-change mark – suggesting that output lost at the end of last year was not fully recouped in January. Where higher output was recorded in January, this was often linked to the improvement in weather conditions.
New order levels also increased during January, with manufacturers and service providers recording similar rates of expansion. Overall, however, new order growth was only modest and well below that seen across the UK as a whole. Panellists commented on improving weather conditions as the principal factor underpinning higher order levels.
Job losses in the Scottish private economy were extended to a third straight month during January. Although only modest, overall job cuts in Scotland contrasted with mild payroll growth at the UK-wide level. Service providers and manufacturers registered divergent trends, with robust growth at goods producers contrasting with solid cuts in the tertiary sector. Where staff numbers were reduced, firms reported that this was primarily driven by low workloads.
Overall price pressures in the Scottish private sector accelerated sharply during the first month of 2011. Input costs rose at the fastest pace since September 2008, driven by a combination of higher fuel, energy and food prices. The need to pass on rising costs, alongside the adjustment of charges in line with higher sales taxes, led to the strongest rise in average output prices for 28 months.
Donald MacRae, chief economist at Bank of Scotland, said: “The Scottish private sector economy made a return to growth in January reducing fears of a ‘double dip’ and increasing expectations for a continuing recovery in 2011. During the month
