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Scotland’s private sector growth slows in June
Scotland’s private sector output continued to grow in June, according to the Royal Bank of Scotland Growth Tracker, but at a slower pace compared to May.
The core Business Activity Index posted above the neutral 50.0 mark but fell to a five-month low of 51.9 from 55.2 in May, reflecting the recent cooling in service sector activity. The rate at which output expanded in Scotland was also weaker than that seen at the UK level.
The slowdown in private sector output was accompanied by a further decline in new business, which was the first recorded in five months. Employment increased in the latest survey period, but at the second-weakest rate since the current expansion began in February 2023. However, inflationary pressures continued to ease as cost burdens increased at the weakest rate in 40 months.
Despite dipping slightly in the month, projections for the outlook for the year ahead across Scotland remained upbeat and broadly in line with the long-term average trend in June. Businesses were hopeful that demand conditions would improve in the coming months and planned to increase their advertising and investment.
Judith Cruickshank, Chair of the Scotland Board, RBS, said: “The Scotland Growth Tracker flagged modest gains in private sector activity during the latest survey period.
“While the recovery lost steam as the services sector saw a notable cooling in June, the ongoing slowdown in the manufacturing sector showed further signs of easing as output was broadly flat and the slowdown in new orders moderated. In addition, private sector firms continued to increase their headcount levels, although the latest increase was fractional overall.
“Pricing pressures continued to ease as the year progressed, with cost charges rising at the weakest pace since February 2021, and the rate of cost inflation matching the weakest seen in the same period. Some companies were eager to set competitive prices to generate new sales.”
Performance relative to the United Kingdom
A further decline in new business was recorded across the Scottish private sector in June, ending a four-month run of growth. Underlying data noted that service providers joined their manufacturing counterparts in contraction. Panellists attributed the slowdown to reduced client activity and advertising spending, as well as a prolonged high interest rate environment and the general election.
Scotland, along with five other nations and regions, bucked the UK trend, signalling a sustained increase in new business.
That said, Scottish businesses remained less optimistic than the UK private sector as a whole.
Scottish private sector employment growth lost momentum as the first half of the year drew to a close. Headcounts increased only fractionally and at the second weakest rate in the current 17-month sequence of increases. While some firms reported success in filling long-standing vacancies, the broader economic climate and reduced client activity resulted in others reducing their staffing levels.
Job growth was also subdued across the UK, with the rate of job creation slightly weaker than that seen in Scotland.
Furthermore, businesses in Scotland saw their backlogs shrink solidly in June, with contractions now seen for most of the past two years. The depletion rate was the steepest in 2024 so far and exceeded the UK average. Reduced trading requirements allowed businesses to complete unfinished work.
Turning to prices, cost burdens rose sharply across Scottish private sector firms in June. The increase in input prices was often said to have resulted from rising raw material and supplier costs. That said, the rate of input price inflation moderated further to its weakest level since February 2021 and was milder than that seen at the UK level.
As a result, Scottish private sector firms raised their rates only modestly during June. The rate of increase was the softest in 40 months. Furthermore, producer prices were raised across Scotland at a much weaker pace than that seen across the UK.