THE downturn in Scotland’s private sector eased noticeably in July, with clear signs that the economy is approaching stabilisation, according to the latest figures from the Royal Bank of Scotland.

The monthly PMI – Purchasing Managers’ Index – showed that 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 from 37.1 in June.

This signalled the softest fall in private sector output since the current downturn began in March. 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. The seasonally adjusted New Business Index rose a further 12.7 points and neared the stabilisation threshold, however, with some respondents noting that looser lockdown restrictions had led to a slight improvement in demand conditions. The total gain in the index following April’s nadir is now nearly 38 points. At the sector level, manufacturing order books rose solidly, although 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 and 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.

A sixth consecutive reduction in Scottish private-sector employment was recorded in July. Temporary business closures and weak demand conditions amid the Covid-19 pandemic were frequently cited as reasons behind the latest fall, although there were further mentions by panellists of use of the Government furlough scheme.

The rate of job shedding was the slowest since February, but still marked overall.

The fall in staffing numbers was broad-based at the sector level with services again registering the sharper decline, although both segments saw the rate of job shedding ease from June. Scottish private sector firms signalled a back-to-back rise in input prices in July, with the increase accelerating to a sharp pace. Greater fuel, staff and general overhead costs, as well as higher charges at suppliers were the main drivers of inflation, according to respondents. A fifth successive reduction in average charges levied by Scottish private sector firms was recorded. Panellists linked the fall to discounting amid intense competitive pressures due to the pandemic. There were also mentions of reduced selling prices in line with the lower VAT rate.

Malcolm Buchanan, chair of the 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. Firms also remained optimistic with regards to output over the coming 12 months. Confidence was the highest since February, with panellists linking positive expectations to hopes of an economic recovery.

“Although July’s figures are a significant step in the right direction, we are yet to see growth. A possible ‘second wave’ of the pandemic and return of lockdown in regions such as Aberdeen could derail any further moves towards a recovery.”