Scottish private sector firms registered a further sharp uplift in business activity during September, according to the latest Royal Bank of Scotland PMI.
The seasonally-adjusted Business Activity Index – a measure of combined manufacturing and service sector output – posted 56.1 in September, signalling a seventh straight monthly expansion in output.
The latest figure was down from 58.1 in August, however, and indicative of the slowest rate of increase for five months, as a sustained upturn in services was slightly offset by a renewed fall in manufacturing output.
The PMI is compiled by IHS Markit from a panel of around 500 manufacturers and service providers. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
Overall new business continued to increase, but saw a similar moderation in the rate of expansion. Meanwhile, cost burdens rose at the fastest pace for over 13 years, while the rate of charge inflation hit a record high.
For the sixth time in as many months, inflows of new work to Scottish private sector firms rose during September.
Panellists linked the latest uplift in new orders with strong client demand, in part due to the relaxation of lockdown restrictions.
Although still sharp overall, the rate of expansion eased to the slowest since April, as sustained growth at services firms was partially offset by a fresh decline in manufacturing order book volumes.
The pace of expansion in new business across Scotland was broadly in line with the UK average.
Private sector firms across Scotland maintained an optimistic outlook towards business activity over the coming 12 months during September. Confidence was attributed through anecdotal evidence to strong demand conditions, the easing of Covid-19 measures and hopes of a sustained economic recovery.
That said, sentiment dipped to an 11-month low, with only Northern Ireland registering a weaker level of optimism than Scotland, across the 12 monitored UK areas.
September data highlighted a sustained rise in Scottish private sector employment, stretching the current sequence of increases to six months. Panellists linked the latest upturn in staffing levels to higher workloads.
Scotland also registered the third-quickest increase in employment across the 12 monitored UK areas in September, behind only London and Wales.
As has been the case in each month since April, the level of outstanding business at Scottish companies rose during September.
Material shortages and a lack of available staff were cited by respondents as reasons for the latest increase. However, the rate of backlog accumulation slowed noticeably on the month, nearing stagnation, with the respective seasonally adjusted index posting only just above the 50 mark.
Sector data highlighted divergent trends in September. Backlogs at goods producers rose further, while service firms recorded the first decrease in outstanding business since March.
A 16th consecutive monthly rise in costs facing Scottish private sector firms was recorded in September. Greater material, fuel and wage costs, logistical issues, Covid-19 and Brexit were all cited as drivers of cost inflation.
At the sector level, goods producers continued to see a far stronger rise in input prices than service provider, although the rate of inflation at the latter still hit a 13-year high.
Scottish private sector firms subsequently raised their average charges for the eleventh month in a row during September. Panellists attributed the latest uptick to the partial pass-through of greater costs to clients.
Both monitored sectors recorded a faster increase in prices charged during September, with manufacturing continuing to record the steeper rate of inflation.
Malcolm Buchanan, chair of the Scotland board at RBS, commented: “Scotland’s private sector remained on a growth footing in September, with business activity rising further amid a sustained uplift in inflows of new work.
“At the same time, companies registered severe inflationary pressures, with cost burdens increasing at the quickest rate since 2008 amid reports of greater fuel, material and staff costs, as well as shortages and logistical issues.
“As a result, firms raised their average charges to a degree unseen since this series began in late-1999. ”
He added: “Although the latest data does indicate a slight slowdown in growth, the third quarter as a whole nonetheless saw to one of the quickest expansions of the private sector on record and it remains in a strong position as we enter the closing months of the year.”
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