WEATHER BLOW TO SCOTLAND’S RECOVERY PACE

Severe weather has taken its toll on business activity in the opening weeks of the year.

The latest Bank of Scotland Purchasing Managers Index report shows that weather has hit both new business and employment.

However, cost pressures subsided to the weakest since mid-2009, bringing a fall in output prices.

The Bank’s seasonally adjusted headline PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – pointed to a decrease in private sector business activity in January. The reading on this index fell from 52.8 to 47.7 – the first sub-50 reading, signaling contraction, since September 2012.

Falls in output were recorded by manufacturers and services firms alike, with mentions among panelists in both sectors of adverse weather disrupting activity.

New business placed at firms operating in Scotland was broadly stable during January, following 25 consecutive months of growth. And manufacturers recorded an outright fall in new orders, despite seeing export sales rise solidly and for the first time in seven months.

As with new business, employment at Scottish firms held steady during the opening month of the year. That compared with robust growth in staffing levels throughout 2014. A slight net gain in payroll numbers in the service sector negated lower employment at factories.

Inflationary pressures continued weaken at start of the year, with the indexes monitoring input and output prices falling to their lowest levels since May and December 2009 respectively. Average output prices decreased for the first time in five months (albeit only marginally), largely reflective of lower charges in the service sector.

Businesses meanwhile faced the slowest rise in average input costs since May 2009, with lower fuel prices acting to partly offset growth in staff salaries and wages.

Said Donald MacRae, Chief Economist at Bank of Scotland, “The first month of 2015 has given the recovery in the Scottish economy a sharp, weather-related jolt reminiscent of the bad weather effect of four years ago.”

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