Clear signs economy becoming more stable

The downturn in private sector activity eased markedly in July according to the latest Royal Bank of Scotland PMI.

The report, published today, shows clear signs that the economy is approaching stabilisation.

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index – a measure of combined manufacturing and service sector output – registered 49.3 in July, rising noticeably from 37.1 in June.

This is the softest fall in private sector output since the current downturn began in March. A reading over 50.0 indicates growth.

Similarly, new business declined only fractionally, while the 12-month outlook for activity strengthened to a five-month high.

July data highlighted a further reduction in new business at Scottish private sector firms, extending the current sequence of decline to five months.

At the sector level, manufacturing order books rose solidly, while services firms registered a fifth successive reduction in new work.

Sentiment with regards to activity over the year ahead remained positive for a third consecutive month in July.

The level of confidence among Scottish firms strengthened to a five-month high. Anecdotal evidence linked optimism to hopes of an economic recovery once lockdown measures are lifted, with many panellists expecting the release of pent-up demand to drive sales.

Malcolm Buchanan, chairman, Scotland board at Royal Bank of Scotland, said: “July data highlighted some encouraging signs that the Scottish private sector is approaching stabilisation.

“There were further reductions in activity and inflows of new business, but the declines were the softest since March and only slight, with some respondents noting that looser Covid-19 related restrictions had resulted in slightly improved demand conditions.

“Firms also remained optimistic with regards to output over the coming 12 months. Confidence was the highest since February,

“Although July’s figures are a significant step in the right direction, we are still yet to see growth.

“A possible second wave of the pandemic and reintroduction of lockdown measures in regions such as Aberdeen has the potential to derail any further moves towards a recovery.”