Scotland’s private sector suffers first fall in output in four months - RBS

Scotland’s private sector has recorded the first fall in output in four months as economic uncertainty and sharply rising costs weigh on firms.

Releasing its latest growth tracker, Royal Bank of Scotland said there had been a drop in business activity at service providers, while manufacturing production broadly stabilised following a 33-month run of declines.

The report’s headline business activity index - a seasonally adjusted index that measures the month-on-month change in the combined output of Scotland’s manufacturing and service sectors - posted below the neutral 50 threshold that separates expansion from contraction in April, falling to 48 from 50.1 in March. That marked the first reduction in Scottish private sector output in four months.

The latest RBS growth tracker pointed to a drop in business activity at service providers as the high street continues to struggle.

Judith Cruickshank, Scotland board chair at Royal Bank of Scotland, part of NatWest Group, said: “Continuing geopolitical tensions contributed to increasing inflationary pressure and ongoing market uncertainty, which are difficult headwinds for Scottish businesses. As a result, business activity fell for the first time in four months in April, while forward-looking indicators, such as new orders, point to challenging market conditions in the coming months.

“Consequently, we see that firms are increasingly focused on managing their costs in the face of these pressures. Furthermore, the latest survey showed employment falling after expansions in the previous two months.”

Where a rise in costs was observed, firms widely attributed this to higher fuel prices due to the conflict in the Middle East. Increased labour costs were also mentioned by many businesses.

Of the 12 monitored UK regions and nations, Scotland recorded the steepest decline in new orders last month.

Businesses across Scotland were “cautiously hopeful” that demand conditions will improve and planned to introduce new products and expand into new markets, the bank noted. That said, the degree of confidence fell to a 40-month low as geopolitical uncertainty dampened projections at some firms.

Following a two-month sequence of modest growth, staff numbers across Scotland’s private sector fell in April, with the rate of reduction the fastest seen since last August. Fewer sales and increasing overhead costs were key factors cited by panellists who had cut their workforce numbers.

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