RBS index

Private sector output rises as UK economy recovers

IFSD Glasgow
Services are continuing to grow strongly (pic: Terry Murden / DB Media Services)

Scotland last month recorded the sharpest rise in private sector output in the past year as business activity increased across the UK.

The headline Royal Bank of Scotland Business Activity Index that measures the month-on-month change in the output of Scotland’s manufacturing and service sectors – ticked up slightly from 53.6 in March to 53.8 in April.

It was the biggest rise since April 2023, though in common with the UK trend it was heavily reliant on strong expansion in services, helping to offset a steeper decline among manufacturers.

The divergence between the two sectors was among the largest recorded in over 26 years of data collection.

The trend in output reflected underlying demand conditions. Manufacturers posted another drop in new orders, while services firms reported a further rise in inflows of new work.

However, the rate at which new work rose across Scotland continued to lag the UK-wide average. 

That said, the degree of confidence slipped to a five-month low and was historically muted. Moreover, Scotland was the least optimistic of all  12 monitored nations and regions.

Judith Cruickshank, chair of the Scotland Board at Royal Bank of Scotland, said: “Scottish private sector companies signalled a solid start to the second quarter, with expansions now noted in each month of 2024.

“However, as has been the case since the current expansion in activity began, growth was limited to service providers, while the manufacturing sector remained in contraction territory.”

Looking at the UK as a whole, Sebastian Burnside, Royal Bank Chief Economist, commented: “Most areas of the UK are enjoying a revival in business activity, with growth even accelerating in most cases in April. 

“Slower increases in prices charged for goods and services in April will be music to the ears of policymakers, but they will be keeping their eyes firmly on these numbers going forward should the economy continue to pick up speed.”

Comment: The SNP has tried to take credit for the increase in private sector output when the evidence points to a UK-wide rise in activity, a case of a high tide lifting all boats.

This is a result of improving economic conditions, notably lower inflation, falling energy and material costs, and a slowdown in wage growth, none of which is in the gift of the Scottish Government.

Despite the better figures, productivity and investment levels remain muted and there is some potential for the Scottish Government to bring about improvement in these areas by keeping down costs, including personal and property taxes as well as business rates, boosting investment in skills, and speeding up planning decisions.

The growth recorded by the RBS index provides further evidence of the UK’s increasing reliance on services – everything from hospitality and computer games design to banking and film-making – which now generate about 70% of the UK’s entire gross domestic product.

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