RBS: Scottish business activity falls as inflation rises and market uncertainty intensifies

Judith Cruickshank

The headline Royal Bank of Scotland Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of Scotland’s manufacturing and service sectors – posted below the neutral 50.0 threshold that separates expansion from contraction in April, falling to 48.0 from 50.1 in March. The index therefore indicated the first reduction in Scottish private sector output in four months.

Sector data revealed a drop in business activity at service providers. However, manufacturing production broadly stabilised following a 33-month run of reduction.

At the same time, greater global economic uncertainty and sharply rising costs weighed on firms’ projections for the year ahead. Furthermore, operating expenses increased across Scotland’s private sector at the fastest pace in 41 months in April. Where a rise in costs was observed, firms widely attributed this to higher fuel prices due to the war in the Middle East. Increased labour costs were also mentioned.

Judith Cruickshank, Scotland Board chair, Royal Bank of Scotland, said: “Continuing geopolitical tensions contributed to increasing inflationary pressure and ongoing market uncertainty, which are difficult headwinds for Scottish businesses.

“As a result, business activity fell for the first time in four months in April, while forward-looking indicators, such as new orders, point to challenging market conditions in the coming months.

“Consequently, we see that firms are increasingly focused on managing their costs in the face of these pressures. Furthermore, the latest survey showed employment falling after expansions in the previous two months.

“In summary, our Royal Bank of Scotland Growth Tracker for last month highlights considerable pressures on businesses. We will continue to review their impact on our customers and how best we can support them through these challenges.”