SCOTLAND’S private sector downturn continued throughout last month, with slower but still rapid falls in business activity and new orders.

According to the latest Royal Bank of Scotland Purchasing Managers’ Index, ongoing coronavirus restrictions stifled demand and disrupted operations. However, the level of positive sentiment improved notably, with anecdotal evidence linking confidence to looser lockdown restrictions and hopes of an economic recovery once the pandemic is under control.

The seasonally adjusted headline Royal Bank of Scotland Business Activity Index – a measure of combined manufacturing and service sector output – registered 37.1 in June to signal a much softer rate contraction when compared to May’s figure of 21.1, but a marked drop nonetheless.

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Private-sector firms in Scotland reported a further reduction in total new orders, extending the current sequence of contraction to four months. According to panellists, client demand remained muted amid the Covid-19 pandemic.

The seasonally adjusted index registered a record rise of 17 points on the month, however, signalling a notably softer rate of decline and indicating that the most severe phase of disruption had passed. However, across the 12 monitored UK areas, Scotland recorded the quickest decline.

The Future Output Index remained above the 50.0 mark for the second month in a row, to signal overall confidence at Scottish private-sector firms with regards to activity over the year ahead.

Sentiment remained slightly subdued in the context of historical data, however.

Private sector firms in Scotland continued to cut workforces at a marked rate in June, amid reports of further redundancies and lay-offs as a result of the coronavirus pandemic, alongside frequent mentions of the government furlough scheme.

The rate of job shedding was the softest for three months, however.

June data highlighted further evidence of spare capacity in the Scottish private sector.

The level of outstanding business fell again, as has been the case in 20 of the past 21 months. The rate of backlog depletion was the softest for three months, although it was still quicker than the series pre-coronavirus record and marked.

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For the first time since March, private sector firms in Scotland recorded a rise in cost burdens during June.

Higher prices at suppliers, greater raw material costs and the added expense of personal protective equipment (PPE) as a result of the coronavirus pandemic were the main drivers of inflation, according to respondents.

Malcolm Buchanan, chair of the Scotland Board at the Royal Bank of Scotland, said: “Business activity across the Scottish private sector continued to decline markedly during June, with total new orders also falling sharply again.

“That said, the rates of decline eased significantly.

“Services firms were again worse affected, with the reductions in both activity and new orders notably faster than those seen for their goods-producing counterparts.

“The 12-month outlook for activity improved for the second month running, with the level of positive sentiment approaching the series average.

“Nonetheless, with client demand stifled, the short-term outlook for the Scottish private sector remains challenging”.