A modest decline in private sector activity across Scotland was accompanied by a further reduction in new business in September, according to the latest Royal Bank of Scotland Growth Tracker.
Nevertheless, companies continued to expand their payrolls at a strong pace.
The headline Business Activity Index – a seasonally adjusted monthly index of Scotland’s manufacturing and service sectors – was only slightly lower in September (48.8) from August (48.9).
However, the headline index has now been in contraction territory for six successive months. Anecdotal evidence linked the latest fall in activity to fewer new orders and the increased cost of living.
Scotland and the North West were the only two areas among the 12 monitored UK regions and nations to register declines in output, with Scotland posting the faster pace of reduction.
Meanwhile, business activity growth across the UK as a whole eased to a modest pace that was the softest in three months.
Encouragingly, staffing levels across Scotland rose for a fourth consecutive month in September. Survey respondents linked the latest increase in workforce numbers to efforts to support future output growth.
The tracker’s findings were more cautious than the Understanding Business survey published by Diffley Partnership and Charlotte Street Partners. It found Scottish businesses are showing new peaks of optimism as they believe economic conditions have improved over the past year and will continue to do so.
Commenting on the tracker’s fjndings, Judith Cruickshank, Scotland board chair, Royal Bank of Scotland, said: “Despite employment rising for a fourth consecutive month, Scottish firms signalled further declines in activity and new orders at the end of the third quarter.
“Business confidence also weakened as cost pressures continued to rise. Higher fuel costs, driven in large part by geopolitical tensions, were a key driver of inflation, alongside reports of increased raw material and labour expenses.
“With Scottish business activity seeing the fastest decline of any UK nation or region and with only Northern Ireland having lower business confidence, it is difficult to see how the current trend of rising employment will be sustained unless activity and sentiment improve.
“As our recent mid-market report found, one way to address this and deliver growth is for government and industry to support mid-market businesses in three key areas – tech, talent and trade.”
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