finance

Scotland's economic recovery continues, but growth falls behind rest of UK



The Scottish economy has continued on its path to recovery in April, but fell behind the rest of the UK, according to the latest Royal Bank of Scotland figures.

The Business Activity Index – a measure of combined manufacturing and service sector output – rose from 54.3 March to 55.4 in April, with the rate of growth being the quickest for eight months.

The index are measured between 0 and 100, with a reading below 50 suggesting a negative response to economic prospects, while readings above 50 highlight an increase. The survey is sent out to 500 manufacturers and service providers.

One of the main factors for the expansion was a rise in new work, with the rate increasing at its fastest for nearly three years.

Respondents claim that client demand had improved noticeably amid lockdown restrictions, which led to a rise in capacity pressures built in April, as backlogs of work rose for the first time in over two-and-a-half years.

Firms took on additional staff for the first time since January 2020, in response to the additional work.

The April data also highlighted the first increase in new business at Scottish private sector firms for eight months.

It was linked to the rise to improved client demand, driven in part by the easing of lockdown restrictions, with an increase in new work being the strongest since August 2018 – with both manufacturers and services firms registering an increase.

However, the rate of growth in Scotland fell behind the UK average in April.

Of the 12 monitored areas, only the North East of England saw a slower expansion of new business than Scotland.

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Scottish companies remained optimistic with regards to output over the next year in April, with the Future Activity Index falling only slightly from March’s record high.

Goods producers recorded the strongest level of sentiment on record in April, although they were still less optimistic than services firms.

Employment in the service sector continued to decrease, although the rate of reduction slowed on the month.

April data highlighted a further increase in cost burdens facing Scottish firms, with the rate of inflation unchanged since March and the fastest since August 2018.

Price hikes at suppliers, greater utility, wage and material costs, as well as Brexit, were the primary drivers of inflation.

At the sector level, both manufacturers and services firms saw a marked rise in costs.

Average charges levied by Scottish private sector firms rose further in April, according to anecdotal evidence, with firms passing higher costs on to clients where possible.

Malcolm Buchanan, chair for the Scotland Board at the RBS, commented: “April data highlighted further gains for the Scottish private sector as it continues on its recovery path.

“Business activity rose for the second month in a row, with the latest upturn the strongest for eight months – key to growth was a renewed rise in new work and one that was the strongest for nearly three years.

“Further positive news came from employment, with companies adding to staff numbers for the first time in over a year – a clear sign that firms are confident of a recovery. Indeed, the year-ahead outlook for activity remained historically elevated.”

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