• Business activity growth eases to three-month low
  
• Steeper upturn in employment amid quicker rise in backlogs
• Near-record increases in input costs and output charges

Slower increases in output were seen across both manufacturing and service sectors, with the former noting the slower rate of growth overall. Meanwhile, total new work increased at the softest pace for four months, which was partly due to a renewed fall in new business at goods producers. On a more positive note, overall employment rose at the fastest pace since October 2021 amid a stronger upturn in backlogs of work.

May data signalled a rise in total new orders placed with private sector firms in Scotland. The upturn was driven by a strong increase in sales at service providers, as manufacturers noted a renewed fall in new business. As a result, composite new orders expanded at the softest rate for four months, albeit one that was solid overall. Where a rise was seen, firms often noted improved market conditions and an ongoing recovery from the pandemic, which had helped to lift customer demand and support new client wins.

The increase in new business in Scotland was broadly in line with that seen across the UK as a whole in May.

Malcolm Buchanan, Chair, Scotland Board, Royal Bank of Scotland, commented:

“May data showed a further expansion of output across the Scottish private sector, but growth softened from the 11-month high seen in April. The loss of momentum was reflective of slower increases in activity across both the manufacturing and service sectors, with the former seeing only a marginal upturn in output. Nonetheless, respondents continued to report improving market conditions and strengthening demand, which in turn boosted activity. Moreover, the sustained uptick in new orders and efforts to expand capacity helped to drive the fastest increase in employment for seven months.

“Ongoing shortages of materials and supply bottlenecks contributed to a further rise in work outstanding, and also drove up prices. Overall inflationary pressure remained intense, with both input costs and output prices rising at near-record rates in May.

“Downside risks to the economy loom large, with increased global economic uncertainty and surging costs among key headwinds. Although companies generally anticipate economic activity to continue to recover over the next 12 months, overall sentiment remained weaker than that seen across the UK as a whole.”

Download the Scotland PMI Report May 2022 (PDF, 435KB)