February showed the third consecutive monthly decline in private sector output in Scotland, according to the Royal Bank of Scotland’s Growth Tracker.

The monthly index showed only a marginal decrease, from 49.6 to 49, as the month also saw a small rise in services business activity.

The index is seasonally adjusted and measures the changes in the combined output from Scotland’s manufacturing and service sectors each month.

Companies in Scotland continue to face obstacles in obtaining new business, and new work inflows falling for the fifth month in a row, now at the steepest rate since November 2023.

Despite less new work, there appears to be growing optimism amongst Scottish businesses, the latest survey revealed.

Firms are predicting that the current economic downturn will end in the coming months, as the 12 month outlook saw an improvement, turning into a three-month high.

“Scotland experienced another month of decline in February, however, there are encouraging signs in the latest Royal Bank Scotland Growth Tracker,” Judith Cruickshank, chair, Scotland Board, Royal Bank of Scotland, said.

“Panellists anticipate activity to rise in the coming 12 months. In fact, the degree of confidence strengthened further from December’s low, with underlying data showing that firms were expectant of new contract wins and improved demand trends.

“Looking ahead, still-elevated price pressures may pose headwinds to performance. Nonetheless, businesses recorded greater confidence for the year-ahead outlook and price pressures in Scotland continue to be milder than the rest of the UK.”

In Context with the UK

Scottish private sector firms recorded another decline in new business during February.

The rate of contraction was the most marked in 15 months and outpaced the UK-wide average.

Reduced demand and increased uncertainty were reasons cited for the
latest downtick. Nonetheless, firms anticipate activity to rise in the coming 12 months.

In fact, the degree of confidence strengthened further from December’s low, with underlying data showing that firms were expectant of new contract wins and improved demand trends.

That said, the level of optimism across Scotland was less upbeat than the UK-wide average and historically subdued.

Job losses were recorded for a third straight month across Scotland’s private sector in February. Employment was reduced at the fastest rate in four years, although the decline was still modest overall and much slower than that observed at the UK level.

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Anecdotal evidence attributed the latest round of job shedding to redundancies and non-replacement of voluntary leavers.

Despite falling workforce numbers, firms were able to keep on top of their backlogs in February. The rate of depletion was sharp and the most pronounced in seven months. Scottish companies noted that less incoming work allowed them to manage their existing tasks more effectively.

Average input prices rose strongly in February with the respective seasonally adjusted index remaining above its long-run trend level. Despite easing slightly, the rate of inflation held close to January’s recent high. The uptick in costs was heavily linked to wage pressures and tax increases. Economic instability also contributed to rising costs.

Deviating from the trend seen for input prices, the latest survey data signalled a stronger rise in average fees charged from the provision for Scottish goods and services. The pace of charge inflation was rapid and at a ten-month high. Charges were raised to cover cost burdens.

Nevertheless, price pressures in Scotland continued to be milder than the UK averages.