The contraction across Scotland's private sector firms deepened during October, according to the latest Royal Bank of Scotland PMI data.
Adjusted for seasonality, the Business Activity Index posted below the neutral 50.0 threshold for the third month running, at 45.8, indicating a sharp decrease overall. Inflows of new business also went into further decline, the latest downturn being the most severe in 20 months.
To further add weakness across the sector, inflationary pressures reaccelerated from September's recent low, as service providers reported quicker upturns in input costs and charges during October. The gloomy performance resulted to the softest intake of workers in 18 months, with goods producers reporting their first reduction in employment since January 2021.
New business received at Scottish private sector firms fell sharply during October. The rate of decrease quickened from September to the fastest in the current fourth-month sequence of reduction.
Of the two sub-sectors, manufacturing firms reported the steeper downturn. Companies noted that looming recession, economic uncertainty and the cost of living crisis weighed on client activity.
Output expectations for the year ahead across private sector firms in Scotland strengthened in the three months to October. The increase in confidence was underpinned on planned expansions and investment, with firms also hopeful of future economic stability. That said, RBS noted that sentiment was relatively muted in context of historical data.
Employment across the Scottish private sector expanded for the 19th month running in October. However, amid a cool-down in hiring activity at service providers, with goods producers reporting their first contraction since January 2021, the overall rate of growth ticked down to the joint-lowest in the aforementioned series.
October's survey showed a sustained fall in levels of outstanding business across Scotland's private sector. The respective seasonally adjusted index posted below the neutral threshold for the fifth consecutive month, the latest reading signalling the fastest depletion in work outstanding since January 2021. As per surveyed businesses, declines in new orders allowed firms to work through previous backlogs.
October data signalled a robust rise in input costs across Scotland's private sector, thereby extending the run of inflation to 29 months. Adjusted for seasonality, the latest reading increased from September's 13-month low as a result of a re-acceleration in input price inflation reported at service firms.
The uptick in average costs was attributed to higher wages and utilities, cost of living crisis and general inflation adding strain on costs.
In line with the upturn in average cost burdens, charge levied by Scottish private sector firms also inclined from September's recent low at a quickened rate during October.
Judith Cruickshank, chair of the Scotland board at RBS, commented: "The downturn in activity quickened on the month, as stubbornly high inflationary pressures, the ongoing cost of living crisis and a threat of recession deterred growth. New orders received at firms also fell further.
"Employment trends across the sector indicated a slowdown in hiring activity over the recent months.
"At the same time, the level of outstanding business also fell at a much sharper rate - the data thus suggesting the further weakness in the labour market will not be surprising.
"As we proceed into the final quarter of the year, market conditions are set to become more challenging," she continued, adding: "The aggressive interest rate hikes, the decline in the value of sterling against the dollar and the rebound in post-Covid demand phasing out, all amidst the ongoing cost of living and energy crises, all point to an extremely difficult period for Scotland."
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