Growth in private-sector economic activity stalled at the start of 2010 as adverse weather exacerbated signs of economic weakness.
Firms reported that the volume of new business received at their units fell in January, while companies reduced staffing levels for the first time in four months, according to the latest Scottish economic survey from global financial inform- ation services company Markit. Evidence from the survey also indicated that rising cost pressures were severely restricting firms’ ability to lower charges.
Companies operating in the Scottish private sector economy recorded only a marginal rise in activity levels at their business units during January, Markit said.
It added that although this extended the current period of expansion to seven months, poor weather conditions markedly reduced the overall pace of growth, and led to a fall in manufacturing production.
Markit said unfavourable weather conditions led businesses to postpone purchasing activity during January.
Consequently, the level of new business received by Scottish firms fell during the month.
Although the reduction was only marginal, it marked the first monthly decline in new business since June last year. Firms operating in the manufacturing sector posted a weaker performance than service providers.
Employment in the Scottish private sector declined for the first time since last September during January.
Although the rate of reduction was only modest, job losses were broad-based across manufacturing and services, and steeper than recorded for the UK as a whole.
Respondents to the survey reported that fewer new orders and ongoing company re-structuring had led to the latest reduction in head counts.
Average cost inflation accelerated to a 15-month high during January, which firms primarily linked to higher fuel and commodity prices. There were also some reports that the return to a 17.5% VAT rate had added to cost pressures, Markit said.
In spite of steep cost rises, firms reported a 15th successive monthly reduction of average charges during January. However, the pace of discounting was the weakest in the current period of decline.
Andrew Self, economist at Markit, said: “The Scottish economic recovery faced substantial head winds during the first month of 2010, as heavy snow and sub-zero temperatures restricted activity. Highlighting the continued weakness of the recovery, new business fell for the first time in four months.
“It is concerning to see output growth stagnate, in stark contrast to the UK as a whole, where growth remained robust. The profits of Scottish firms continued to be squeezed in January, as input costs rose sharply.”