There are mixed messages about the British economy from reports out today. Two of the reports, which look at manufacturing, suggest that the economy is growing – but only just. The third, focusing on financial services, is more gloomy.
The report from Markit and the Chartered Institute of Purchasing & Supply says that the manufacturing sector returned to growth in September for the first time in three months. Its report is based on the purchasing managers' index (PMI) which rose to 51.1 last month – any level above 50 implies growth.
This came as something of a surprise, since most analysts had forecast 48.6. However, the report says that the level of new export orders shrank at its fastest pace since May 2009 – and, although the figures were better than expected, they are still much worse than those from the start of the year. The average PMI in the first quarter had hit a near-record 59.4.
The report also has bad news on employment, which fell for the third month in a row. Job losses were linked to company restructuring and leavers were not replaced. Timber and paper and transport saw the largest number of job cuts; these sectors also had the weakest output.
Markit’s economist, Rob Dobson, said that the “modest return to growth of UK manufacturing output in September is a positive, but it is hard to escape the fact that the sector's performance has weakened substantially since the opening quarter's growth surge. These data suggest that the positive contribution of manufacturing to the broader economic recovery is likely to remain modest, at best, through the remainder of the year.”
The general impression is continued in the second survey – the Lloyds TSB Scotland Business Monitor – which says that Scotland's economy is continuing along a route of “sluggish recovery”. In the three months to August, 34 per cent of firms surveyed reported an increased turnover, 32 per cent said it remained the same, while 34 per cent experienced a fall in business.
But they were mostly much more gloomy about their future prospects than in more recent surveys. The report suggests that 31 per cent of firms believed their turnover was likely to fall in the months ahead.
In the view of Donald MacRae, chief economist at Lloyds TSB Scotland, “This latest Business Monitor suggests the private sector of the Scottish economy showed marginal growth in the first eight months of the year. There is no definite sign of a lapse into a 'double dip' but every indication of a protracted, slow and moderate recovery with the possibility of a fall in output in some quarters.
“In the face of slowing global demand, falling business and consumer confidence in the UK and cuts in government spending, the Scottish economy is showing resilience. Prospects for more robust growth remain muted. A more vigorous recovery awaits an uplift in both consumer and business confidence.”
But contrast, the CBI/PwC survey of the UK financial services sector found the pace of growth continued to slow in the three months to September. The results confirmed the heightened level of uncertainty in the financial markets and that, according to Stephanie Bruce, head of financial services at PwC in Scotland,” is undoubtedly impacting both financial results and confidence.
“With a significant level of change anticipated for the next year, primarily through ongoing regulatory drivers, this uncertainty can also impact on decision making of key projects, IT spend and resources. The health of the financial services industry has a major impact in Scotland – and in particular, Edinburgh – where the sector is a significant driver of the local economy.”
Bruce thought that uncertainty in the eurozone, not to mention the global debt levels combined with continued concern over the level of regulation would most certainly be key factors for organisations.
Ian McCafferty, chief economic adviser at the CBI, added that the recovery in the financial services sector was continuing, “but the pace of growth has slowed compared with earlier in the year. After a torrid couple of months on global financial markets, the mood has clearly darkened. Uncertainty about future demand, worries about the global recovery and shifting regulatory sands are weighing on sentiment.”
However, the finance secretary, John Swinney, said that “our actions to strengthen Scotland's recovery are working, with evidence showing an acceleration in export activity and marginal growth in the private sector. News that Scotland's economy is continuing to recover is supported by the latest labour market statistics, which reported a fall of 33,000 in unemployment in Scotland over the year, compared to a rise of 44,000 in the UK over the same period. However, there can be absolutely no room for complacency.”
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