By Daniel Hunter

January’s PMI report from Bank of Scotland showed that growth of Scottish private sector activity gained momentum at the start of 2013, with both output and new work increasing at faster rates than in December.

Improved business conditions and added pressure on operating capacity led firms to create extra jobs over the month. Meanwhile, input price inflation eased again, although remained sufficiently strong for businesses to raise output charges.

January saw the Bank of Scotland PMI rise to a seven-month high of 52.3, up from 51.2 in December, signalling a moderate and accelerated expansion of private sector business activity north of the border. Growth remained centred on the services sector, with a further (albeit slightly slower) decrease in goods production recorded. This latest expansion of Scotland’s private sector economy was broadly in line with the rate of growth seen at the UK level.

Much of the improved trend in business activity in Scotland reflected an accelerated increase in new work placed with firms during January. Intakes of new business rose for the second month in row, and at the fastest pace since March 2012. A rise in demand within the domestic market was the principal factor behind the increase in intakes of new work, with a slight drop in new export orders recorded at manufacturers.

In January, the level of outstanding business at private sector firms in Scotland was unchanged from that registered one month before. This ended a 16-month sequence of depletion, and pointed to greater pressure on operating capacity than has been the case in recent months.

Accordingly, firms continued to add to their payroll numbers during January, raising employment levels for the seventh time in the past eight months. Although the sharpest since last July, the overall rate of net job creation was nonetheless still modest and slower than the UK average.

January data showed a further rise in cost burdens facing businesses north of the border, with higher fuel, labour and raw materials costs mentioned by panellists. However, the rate of inflation in operating costs eased to the slowest in seven months, and was down on the long-run series average.
Output prices meanwhile increased on average, with a rise in factory gate prices more than offsetting reduced tariffs in the tertiary sector.

"The Scottish economy gained momentum in January this year with the PMI reaching a seven month high of 52.3," Donald MacRae, Chief Economist at Bank of Scotland, said.

"Both the level of new business and employment rose in the month but were concentrated in the service sector. The rate of decline in manufacturing output was modest and has eased since the previous month but export demand remains weak. This result suggests the Scottish economy not only started the year in growth mode but has maintained moderate growth throughout January 2013.”

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