The Scottish private sector signalled a mild expansion in activity midway through the second quarter, according to the latest Royal Bank of Scotland PMI data.
However, the seasonally-adjusted Business Activity Index slipped from April’s 10-month high of 54.3 to 50.7 in May - the weakest reading in the current four-month sequence of growth.
Sector data highlighted that the rate of growth in services business activity moderated, while a second successive month of reduction in manufacturing new orders resulted in a fresh reduction in goods output.
Overall growth in new business remained modest, as an accelerated expansion at service providers masked the downturn at manufacturers. Nonetheless, companies further expanded employment, with both sub-sectors registering solid rates of job creation.
For the fourth consecutive month, Scottish private sector firms registered an expansion in new business during May. Where an increase was reported, respondents linked this to new clients wins and the commencement of new projects.
However, sector data indicated a growing divergence, as quicker growth in new business at service firms helped offset a faster downturn at goods producers. The overall expansion across Scotland was weaker than seen across the UK as a whole.
Confidence levels remained unchanged from the previous survey period across Scotland during May. Firms were optimistic of growth in activity over the coming 12 months, with expectations pinned on increased client demand, introduction of new products and resilient markets.
Nonetheless, of the 12 monitored UK regions, optimism was the third weakest in Scotland, ahead of Northern Ireland and the north east of England.
Staffing levels across the Scottish private sector expanded for the fourth straight month in May. The respective index indicated a solid rate of job creation, albeit one that was slightly softer than in April.
Firms attributed the increase in payroll numbers to filling long-standing roles and increased recruitment to help with enhanced workload. Moreover, the upturn in employment across Scotland was the fastest of the 12 monitored UK regions.
After a month of backlog accumulation, May data signalled a renewed fall in the level of outstanding business across Scotland. The rate of depletion was the strongest since January.
Completion of previous contracts and increased workforce were linked to the latest reduction. Overall volumes of incomplete business fell across Scotland at a slightly stronger rate than seen at the UK level.
Input costs faced by firms in Scotland continued to increase further in May, thereby stretching the current run of inflation to three years. Respondents noted that higher wages, increased shipping costs, Brexit and general inflation all fed into greater cost burdens.
Scottish firms raised their prices charged for goods and services in line with higher costs during May. The rate of inflation ticked down from April, as a result of cooling charges for manufactured goods, but remained historically strong.
Judith Cruickshank, chair of the Scotland board at RBS, commented: “Scotland’s private sector started the second quarter with a solid rise in output in April, but May’s data signal a loss of momentum as services growth slowed and manufacturing output fell for the first time in four months.
“The latest expansion in private sector output was the softest in the current sequence of expansion that began in February.
“Inflationary pressures cooled as cost burdens rose at the softest pace in two years,“ she continued. “Nonetheless, both input price and output charge inflation remained stubbornly elevated, and much above their respective pre-pandemic trend levels.
“On a positive note, firms continued to expand workforce numbers, moreover, solid hiring was reported across both sub-sectors.“
Don't miss the latest headlines with our twice-daily newsletter - sign up here for free.
