By Daniel Hunter

The latest Bank of Scotland PMI report showed that output in the Scottish private sector expanded at a faster rate in June, with job creation returning after employment levels stagnated in May.

However, new work intakes rose only marginally over the month and backlogs were once again reduced, raising some concerns over the prospects of the improved rate of growth in output being maintained in the coming months.

At 52.5 in June, up from May’s 17-month low of 50.8, the Bank of Scotland PMI — a seasonally adjusted index monitoring activity across Scotland’s manufacturing and service industries — showed that Scotland’s private sector economy expanded at a solid and accelerated pace at the end of the second quarter. Moreover, the rate of growth was stronger than that recorded at the UK level. Both goods production and services activity north of the border increased over the month, the latter at the sharper rate.

New business levels also increased in June but, unlike the trend recorded for output, growth remained only marginal. While service providers saw a further (albeit modest) rise in business wins, this was partly offset by a third successive monthly decrease in new work placed with goods producers.

Employment levels across Scotland rose in June after stagnating during the previous survey period, marking the seventh increase in the past eight months. Jobs were created across both manufacturing and services, with the former recording the slightly steeper increase in payroll numbers. Only the two English Midlands regions outperformed Scotland on the jobs front in June.

Backlogs of work were meanwhile reduced at a slower pace — the weakest since February. The modest decrease in outstanding business extended the ongoing period of depletion to ten months.

With manufacturers north of the border noting a decrease in their average purchasing costs in June, input price inflation overall eased to the slowest in 33 months. That said, cost pressures were stronger than in all other monitored regions of the UK. Firms continued to cite increases in the costs of utilities and labour.

Output prices crept up marginally on average in June, predominantly reflecting a rise factory gate prices and contrasting with slight charge deflation across the UK economy as a whole.

"The June PMI showed a welcome pick-up in the Scottish economy with both manufacturing and services recording growth," Donald MacRae, Chief Economist at Bank of Scotland, said.

"Employment rose across all sectors while cost pressures continued to ease. However, the marginal rise in new orders overall and the fall in new export orders illustrate the challenge of maintaining growth in the face of a widespread slowdown in the UK and the Eurozone economies.”

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