Scottish economy still growing as South of England stalls

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By Russell Bruce

It is that time of the month again when the highly regarded Purchasing Managers’ Index pronounces the pace of economic growth or contraction.

Both Scotland and the UK as a whole continue to show growth but the pace of growth is slowing.  Scotland dropped from 51.9 in September to 51 in October.

Whilst this is not surprising given the global slowdown, Scotland turned in a comparatively better performance than the UK as a whole, which slipped to 50.7.

The statistical basis for the analysis in these surveys is that a figure above 50 represents growth over the previous month.  A figure below 50 represents contraction from the previous month.

The Scottish manufacturing sector recorded a further increase in employment in October.  Easing only modestly since the previous survey period, the rate of job creation remained solid relative to the long-run trend.

Around 12% of panellists reported higher staff numbers, with a number linking this to efforts to reduce backlogs.

In line with the trend registered for total production, purchasing activity by Scottish manufacturers increased modestly in October.  Consequently, the seasonally adjusted Quantity of Goods Purchased Index has posted above the neutral mark of 50.0 – which separates growth from contraction – for three months in succession.

In the service sector, of the respondents that registered an increase in business activity compared with the previous month, a large proportion linked this to increased new business inflows.

Overall the Scottish service sector registered a modest rise in business activity during October.  This latest monthly rise in output maintained the positive trend of the last 10 months but the slowing rate of increase means the Westminster austerity programme is squeezing growth potential.

The monthly PMI report for Scotland is prepared by Markit Economics for the Bank of Scotland.

Summarising the October report Donald MacRae, Chief Economist at Bank of Scotland, said:

“The October PMI recorded its tenth consecutive positive month this year indicating the private sector of the Scottish economy continued to grow albeit only marginally.  However, the pace of growth fell to its lowest level for ten months while new business orders fell slightly for the second consecutive month.  Input cost pressures eased but remain strong.  The Scottish economy is showing resilience in the face of the global slowdown but is struggling to maintain growth momentum.”

Of the 13 nations/regions of the UK, all the major economic indicators have been showing Scotland in the top quartile for a sustained period.  The Scottish economy has been competing with the English regions that have traditionally outperformed the rest of the UK – London, the South East and the East of England.

The latest Purchasing Mangers Indices (PMI) for the English regions is therefore rather interesting, so here is the Scotland result compared with the dominant English regions.  Percentage figures are share of UK population.

Scotland                         8.3%                        51

London                         21.5%                        50.4

South East                    14.3%                        48.3

East of England              8.7%                        49.1

With London showing more contraction in the rate of growth than Scotland and the South East and East of England now in negative territory we can expect southern English voices to increasingly question the economic strategy of the coalition government.

The interesting thing about this would be that they would be agreeing with Alex Salmond and John Swinney, but don’t expect a general acknowledgement of that.

Meanwhile for those looking to invest, Scotland with its SNP government and ambitions for Scotland looks a better bet than south of Watford.  If they have questions about Scottish Independence much better to talk to Scottish Enterprise and the Scottish Government than to George Osborne.