• Output contracted in August amid a quicker fall in new orders
• Growth in employment moderated
• The business outlook dampened, as confidence hit a 27-month low

At the same time, inflows of new work fell for the second consecutive month, and that too at a quickened pace. The drop in business requirements allowed firms to work through backlogs, resulting in capacity pressures easing for the third month running. Also, the rate of job creation measured the weakest in 16 months, signalling a slowdown in hiring activity. On the flipside, weakening demand gave respite to inflationary pressures; input prices rose at the weakest pace in seven months, while firms raised their charges at the second-slowest rate since January.

For the second consecutive month, a contraction was recorded in new business received by the Scottish private sector in August. The rate of decrease quickened on the month as inflows of new orders received at service firms stagnated, while manufacturing companies noted a fourth running month of reduction. According to the surveyed businesses, the downturn stemmed from weakening client demand, Brexit, the Ukraine-Russia war, and rising economic uncertainty.

Moreover, the pace of decrease registered across Scotland was stronger than that seen for the UK as a whole.

Expectations towards future activity at Scottish companies moderated during August. The level of positive sentiment dropped to a 27-month low. Rising recession risks, the cost-of-living crisis and declining demand all dampened the 12-month outlook.

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented:

“August data signalled a deterioration across the Scottish private sector, as activity levels fell for the first time in 18 months. Moreover, weak client demand and rising economic uncertainty, with a threat of a recession looming, resulted in falling inflows of new business.

“The latest survey data did indicate some easing of upward pressure on input costs as a result of a reduction in client appetite. Nonetheless, inflation rates remained stubbornly strong.

“Moreover, the contraction across the sector impacted business confidence, which hit a 27-month low during August. Market uncertainties and the cost-of-living crisis heavily weighed on optimism and suggests a gloomy performance in the months ahead.”

Download the Scotland PMI Report August 2022 (PDF, 250KB)