Scottish companies are raising their prices at the fastest pace since comparable data were first collected in January 2000, according to a survey published today which shows the economy's growth rate easing further but remaining firm by historical standards.
The marginal deceleration of growth in April, signalled by Royal Bank of Scotland's latest monthly Purchasing Managers' Index report, pushed the private sector economy north of the border down from eighth to ninth in the expansion league table of 12 UK nations and regions.
The headline Scottish output index dipped from 56.1 in March to 55.8 in April. It has been higher than the level of 50 which separates expan- sion from contraction since mid-2003.
However, the April index level meant only Eastern England, Yorkshire and Humberside, and Northern Ireland grew more slowly than the Scottish economy last month.
Royal's latest PMI Scotland report shows that the private sector workforce north of the border grew for a 26th consecutive month in April, with employment growing strongly in the dominant service sector but dipping slightly in manufacturing.
The prices charged index jumped from 54.0 in March to 55.1 in April - driven mainly by a sharp acceleration in the rate of increase of factory gate prices. The prices charged index for manufacturing leapt from 54.9 in March to 57.1 last month to signal significant acceleration, while that for services showed a more modest increase from 53.3 to 53.7.
Meanwhile, Scottish companies reported that unfinished work increased last month at the fastest pace since comparable data were first collected in 2000. Survey respondents reported that higher levels of new business had tested company capacity.
Service sector firms accumulated backlogs of work at a significantly faster pace. Manufacturing backlogs fell again, although at a slower pace, mainly because of improvements in efficiency.
David Fenton, senior economist at Royal Bank, said: "There are signs that inflationary pressures are building in Scotland's private sector economy. A combination of rising input costs and strong demand pushed the output price index to its highest level since records began in 2000.
"Growth in new business fell on the month, but has been so strong over the past year that order books are now brimming over, with the index of unfinished work also at a record high. Companies are already taking on additional staff, but may have to boost capital investment to ease capacity constraints."
Fenton did not believe the inflationary pressures evident in the Scottish economy would in themselves have a significant bearing on the outlook for UK interest rates. However, he also noted that firms' pricing power was mentioned in a statement by the Bank of England's Monetary Policy Committee accompanying last week's quarter-point rise in base rates to a six-year high of 5.5%.
The Scottish input price index jumped from 59.2 in March to 60.4 in April - to signal the fastest rate of increase in firms' costs for eight months.
Fenton said: "Scotland accounts for just 8% of UK economic activity, so evidence of overheating here is only a problem for the MPC to the extent that it is mirrored in most other regions. This doesn't appear to be the case at present, though the statement that accompanied Thursday's rate hike made it clear that the committee is on its guard."
Growth of new orders slowed between March and April, partly because of a softer picture on the export front. Scottish manufacturers reported weaker US demand - which may reflect the strength of a pound which went through the $2 mark last month.
Growth in the Scottish service sector continued to be driven mainly by the travel, tourism and leisure, and business and financial services categories.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article