By Daniel Hunter

Businesses within Scotland’s private sector economy had a challenging start to the third quarter, according to the latest Bank of Scotland PMI report. Output growth slowed in July on a decrease in incoming new business, while input cost inflation increased to a rate that was much faster than that seen across the UK on average.

Latest data pointed to only a marginal increase in output across Scotland’s manufacturing and service sectors combined in July, with the rate of growth slower than that registered during the preceding month. This was highlighted by the seasonally adjusted Bank of Scotland PMI posting 51.0, down from 52.5 in June. Sector data showed that a further rise in activity at service providers was partly offset by a reduction in goods production — the most marked for over a year-and-a-half. Albeit only marginal, growth in Scotland contrasted with a reduction in output at the UK level.

July saw a slight decrease in new work placed with Scottish private sector businesses, ending a run of expansion that stretched back to last December. The key area of weakness was again in manufacturing, where new orders fell at an accelerated rate to offset marginal growth in the service sector.

Despite demand across Scotland’s private sector weakening in July, firms continued to recruit additional staff over the month. The overall rate of job creation was broadly unchanged since June, and roughly in line with that recorded across the UK economy as a whole. Driving employment higher north of the border was net staff hiring at service providers.

Fewer intakes of new business enabled firms to further reduce backlogs of work, extending the current sequence of decline to 11 months. Furthermore, the rate of clearance was the sharpest since April, and solid by the historical standards of the series.

Input price inflation accelerated to the fastest in three months during July, primarily reflecting greater cost pressures at service providers. Of the regions monitored by PMI data, only Northern Ireland saw a comparatively steeper increase in average input costs.

Prices charged by private sector companies in Scotland were virtually unchanged on average during July, as competition forced firms to absorb higher costs.

"The July PMI suggests growth in the private sector of the Scottish economy was marginal with a fall in manufacturing output offset by continuing growth in service activity," Donald MacRae, Chief Economist at Bank of Scotland, said.

"The Scottish economy is struggling to maintain growth momentum in the face of the global slowdown. Low or no growth is in prospect for the rest of 2012.”

Join us on
Follow @freshbusiness