Economic worries as output falls for first time in five years

NEARLY half a decade of continuous private sector economic growth in Scotland has come to an end, figures out today reveal. Output north of the Border in April declined for the first time since June 2003, according to the authoritative Purchasing Managers Index.

And the figures also show that total private sector employment in Scotland fell for the first time in more than three years. The survey, for Royal Bank of Scotland, contains a raft of bad news on the Scottish economy, indicating that the credit-crunch induced slowdown is beginning to bite.

According to the report of activity in April, Scotland's output index was 48.3, from 51.4 for March, the first time it has been a negative figure since June 2003. Any figure above 50 in the index indicates growth. In other worrying signs for the economy, the survey found that:

&149 inflation of firms' input costs hit a survey high, leading to a rate of output charge inflation that was only slightly lower than March's peak;

&149 manufacturers registered a slightly sharper rate of decline in output than service providers;

&149 firms in the business services sector saw a particularly sharp fall in activity;

• the volume of outstanding business in the private sector declined for the eighth month running, the sharpest fall since June 2003.

A decline in private sector employment, to a figure of 49.8 on the index from 50.6 in March will be of particular concern to the governments north and south of the Border.

Unemployment is a "lagging indicator" and tends to rise only some way into an economic slowdown. According to the survey, the fall reflected a decline in service sector jobs, offset by a slight expansion in manufacturing.

Details within the findings showed that the decline in employment was concentrated in the travel, tourism and leisure sector, which registered a "sharp fall in staffing levels".

The survey found that firms across Scotland reported that market conditions had worsened as consumer confidence weakened in the face of the credit crunch, high oil prices and rising utility and food bills.

Last night, one of RBS's senior economists said that the figures – which do not include the retail, construction and public sectors – did not show Scotland in recession but did reveal the slowdown in the economy north of the Border. David Fenton, RBS head of microeconomics, said the formal definition of recession would apply to the whole of the economy over two consecutive quarters.

He added: "Recession would apply to the whole of the economy and these figures do not show that. But they do tell us how things are domestically in Scotland."

Fenton continued: "Scotland made a disappointing start to the second quarter, with a broad-based decline in business activity and the highest cost inflation since records began.

"Energy, metal and food prices were all in the ascent. Output prices also rose sharply, which suggests that companies retain a reasonable degree of pricing power."

The decline north of the Border reflects a general slowing of the UK economy. The output figure for the whole of the UK is down to just 50.5, from 52.1 in March and 53.7 in February.

Scotland is one of five nations and regions of the UK now experiencing a contraction in private sector activity. The others are Northern Ireland, Wales and the east and west Midlands of England.