Scottish economy ‘lost momentum’ in July, key report finds

·2-min read
The pace of growth fell for the third month in a row
The pace of growth fell for the third month in a row

By Scott Wright

GROWTH in Scotland’s private sector economy slowed to a 17-month low in July amid weakness in the manufacturing sector, sustained cost inflation, and a fall in new business for the first time since March 2021.

As fears mount that the UK is poised to slip into a protracted recession, a major survey of Scottish business activity has found the “post-pandemic rebound continues to fade”.

The seasonally adjusted Royal Bank of Scotland Activity Index – a measure of combined manufacturing and service sector output – fell to 50.2 in July from 54.4 in June. It was the third month in a row the index has shown a fall in growth, with the reading signalling the weakest rate of growth in the current 17-month run of expansion. A reading of 50 separates contraction from expansion.

Scottish firms signalled a new fall in orders in July, the first contraction since March of last year, with the index dragged lower by a sharp drop in factory orders. That came as a weaker upturn in sales was seen at service providers, which was linked by panellists to reduced consumer spending as the cost of living rises and economic uncertainty grows.

The reading in Scotland contrasted the picture for the UK as a whole, which saw a modest expansion in new orders.

The survey underlined the continuing effects of rising input prices, which increased sharply in July and stretched the current run of input cost inflation to 26 months. While the rate of increase eased to a five-month low, it remained among the fastest on record, with higher commodity prices, Brexit and the war in Ukraine cited.

The pace of cost of inflation was slightly faster than that observed across the UK as a whole.

Confidence among Scottish firms, meanwhile, “strengthened marginally” on the back of hopes

new customers and improvements in client spending will lead to expansions of activity in the year ahead.

However, the report found overall optimism was the second lowest in 21 months. Firms raised employment again in July, though the rate of job creation was the slowest in 15 months.

Royal Bank of Scotland’s Malcolm Buchanan said: “The Scottish private sector lost growth momentum for the third month running during July. Activity levels were broadly unchanged as the post-pandemic rebound continued to fade.”