According to the latest PMI data from the Royal Bank of Scotland, the Scottish private sector signaled a slight increase in activity in the middle of the second quarter.
However, the seasonally adjusted Business Activity Index fell from 54.3 in April, a 10-month high, to 50.7 in May – the weakest reading in the current four-month growth series.
Industry data showed that the growth rate of services sector activity slowed, while a second consecutive month of decline in new orders in manufacturing resulted in a further decline in goods production.
Overall growth in new business remained modest as accelerated expansion in service providers masked the decline in manufacturers. Nevertheless, companies continued to expand employment, with both subsectors recording solid job creation.
For the fourth consecutive month, Scottish private sector companies recorded an increase in new business in May. Where an increase was reported, respondents linked this to the acquisition of new customers and the start of new projects.
Industry data, however, pointed to increasing divergence as faster growth in new customers in service companies helped offset a faster downturn in goods manufacturers. Overall expansion in Scotland was weaker than in the UK as a whole.
Confidence levels across Scotland remained unchanged from the previous survey period in May. Companies were bullish on business growth over the next 12 months, with expectations focused on increased customer demand, new product launches and resilient markets.
Nevertheless, the optimism of the 12 British regions monitored was the third weakest in Scotland, ahead of Northern Ireland and the North East of England.
The Scottish private sector workforce increased for the fourth month in a row in May. The respective index pointed to robust job creation, albeit slightly softer than in April.
Companies attributed the increase in payrolls to long-term positions and more hiring to help with the increased workload. In addition, the rebound in employment across Scotland was the fastest of the 12 UK regions audited.
After a month of backlogs widening, data from May showed a renewed decline in the level of outstanding cases across Scotland. The rate of exhaustion was the strongest since January.
Completion of previous contracts and increased headcount were linked to the latest reduction. Overall volumes of unfinished cases fell at a slightly faster rate in Scotland than in the UK.
Input costs facing businesses in Scotland continued to rise in May, pushing current inflation to three years. Respondents noted that higher wages, higher shipping costs, Brexit and general inflation all led to higher costs.
Scottish businesses increased their prices for goods and services in line with higher costs in May. Inflation rates fell from April due to cooling costs for industrial goods, but remained historically strong.
Judith Cruickshank, chairman of the Scotland board at RBS, commented: “Scotland’s private sector started the second quarter with a solid increase in output in April, but May data points to a loss of momentum as the service growth slowed and production fell for the first time in four months.
“The latest growth in private sector manufacturing was the softest in the current growth series that began in February.
“Inflationary pressures eased as cost pressures rose at their slowest pace in two years,” she continued. “Nevertheless, both input price and output tax inflation remained stubbornly high, well above their respective pre-pandemic trend levels.
“On a positive note, companies continued to expand their workforce, and solid hires were reported in both subsectors.”
Don’t miss the latest news with our twice-daily newsletter – sign up here for free.