Manufacturing: Output and Future Output. Manufacturing: New Orders and New Export Orders. Manufacturing: Employment and Backlogs of Work

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1 Bank of Scotland is part of Lloyds Banking Group, the UK s largest retail bank and Scotland s largest financial services employer. Established in 1695, Bank of Scotland is the UK s oldest surviving clearing bank. Scottish private sector output growth surges to 33-month high Key findings: Headline PMI rises to 53.8, the highest since October 2014 Solid expansions in new business and employment Our goal is to be the best financial services provider in Scotland. We believe this means we must build a leadership position not on the basis of scale but on the foundations of reputation and recommendation. Bank of Scotland The Mound Edinburgh, EH1 1YZ Tel: mairi.gordon@lloydsbanking.com The Bank of Scotland PMI (Purchasing Managers Index ) is produced by IHS Markit. The report features original survey data collected from a panel of around 0 companies based in Scotland and operating in both manufacturing and service sectors. The panel has been carefully selected in order to accurately reflect the true structure of the Scottish economy and therefore provide an accurate picture of business conditions in the region. The Scotland survey forms part of a series of regional surveys and is derived from the highly regarded national PMI survey produced by IHS Markit. Input price inflation remains sharp July s PMI survey data signalled a strong start to the third quarter of 2017 for the Scottish private sector. Output rose at the fastest pace in nearly three years, reflecting stronger expansions in both manufacturing and services. Increased output was driven by a solid expansion in new business in July; the manufacturing sector registered sharp growth in new orders, whilst new business in the service sector rose at a comparatively moderate rate. On the price front, input cost inflation remained steep in both the services and manufacturing sectors in Scotland. The seasonally adjusted headline Bank of Scotland PMI - a single-figure measure of the month-on-month change in combined manufacturing and services output - rose to 53.8 in July, from 51.1 in June. The latest data indicated the strongest growth of Scottish private sector output in 33 months. Furthermore, it extended the current trend of expansion to eight months, the longest sequence since New orders received by Scottish private sector firms grew at the fastest rate since December Furthermore, the pace of expansion was above the series historical average. The manufacturing sector posted a sharper rate of expansion than that seen in the service sector in July. Anecdotal evidence suggested a strong level of underlying demand for Scottish-produced goods during the latest survey period. Job creation was at a 31-month high in the latest survey, signalling an expansion in the Scottish private sector workforce for the second month running. Anecdotal evidence suggested that firms responded to higher output requirements by hiring additional staff. Consequently, the resurgence in job creation led to backlogs of work being cleared at a solid pace in July. That said, the rate at which work outstanding was completed was not as sharp as in the preceding two surveys. At the sector level, business outstanding fell at a comparatively marked pace in the service sector. Input price inflation remained sharp in July, with the latest survey signalling a fractional acceleration in the rate of inflation. Furthermore, average cost burdens faced by Scottish private sector firms continue to increase at a faster pace than the series long-run average. Panellists pointed towards the exchange rate and wage inflation as key factors behind the rise. Output charge inflation was slight overall in the latest survey, and slightly below the longrun average. Moreover, the rate of output price inflation fell to a ten-month low. Anecdotal evidence suggested that Scottish firms continued to absorb part of the burden of increased input costs. Finally, optimism towards the future remained positive overall, and matched June s confidence reading. IHS Markit Henley on Thames Oxon RG9 1HG, UK Tel: Fax: sa,.0 = no change on previous month Bank of Scotland PMI summary The intellectual property rights to the Bank of Scotland PMI provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information ( data ) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers Index and PMI are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. Bank of Scotland use the above marks under license. IHS Markit is a registered trade mark of IHS Markit Limited. August 14 th 2017 Blue line: Output Black line: Employment Composite index summary Output New Business Backlogs of Work Employment Input Prices Output Prices Future Scotland UK Scotland UK Scotland UK Scotland UK Scotland UK Scotland UK Scotland UK May' Jun Jul

2 Manufacturing: Output and Future Output Q. Compare your level of output/production this month with the situation one month ago Feb Mar Apr May Jun Jul Scottish manufacturing production rose markedly during the latest survey period. Furthermore, the rate of growth was above that seen in June and was above the series long-run average. Exactly 25% of firms noted that their level of output in July was higher than in June, compared with only 17% that reported a fall. Optimism towards future growth prospects in the Scottish manufacturing sector rose to a 26-month high in July. Anecdotal evidence suggested that strong underlying demand, expected business expansion and marketing campaigns all contributed to the latest improvement in confidence. Q. In 12 months' time, do you expect the overall volume of output at your unit to be higher, the same or lower than now? 2017 Feb N/A Mar N/A Apr N/A May N/A Jun N/A Jul N/A sa,.0 = no change on previous month Blue line: Output Black line: Future output.0 = no change on previous month Increasing degree of optimism Increasing degree of pessimism Manufacturing: New Orders and New Export Orders Q. Compare the level of new orders received (UK and export) this month with the 2017 Feb Mar Apr May Jun Jul July s survey signalled a rise in the level of new orders received by manufacturing companies in Scotland. Furthermore, the rate of growth was steep overall and the sharpest recorded in six months. Approximately 28% of firms reported an increase, compared with just 17% which noted the opposite. The seasonally adjusted New Export Orders Index rose above the all-important.0 no-change mark in July, signalling a return to growth. Moreover, the rate of growth in new orders received from abroad was solid overall, and the fastest since January this year. Some firms noted that the exchange rate had benefited demand for exports. Q. Compare the level of new export orders received this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: New orders Black line: New export orders Manufacturing: Employment and Backlogs of Work Q. Compare the no. of people employed this month with the situation one month ago (treat two part-time as one full-time & ignore temps) Feb Mar Apr May Jun Jul Scottish manufacturing job creation was solid overall in July, and the fastest since April. The latest improvement in the level of employment extended the current sequence of growth to six months. Anecdotal evidence suggested that firms expanded their workforces in response to rising output requirements. Work outstanding in the Scottish manufacturing sector decreased in during the latest survey, lengthening the current trend of contraction to five months. Some firms noted that they had allocated resources towards clearing backlogs in July. Q. Compare the level of outstanding business in your company this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month 25 Blue line: Employment Black line: Backlogs of work 2

3 August 14 th 2017 Manufacturing: Stocks of Purchases and Stocks of Finished Goods Q. Compare your stocks of purchased goods in units this month with the 2017 Feb Mar Apr May Jun Jul July s survey data pointed to a rise in the level of pre-production stocks held at Scottish manufacturers, following a decline in June. The rate of accumulation was modest overall. Some companies noted that they were stockpiling inputs in anticipation of higher demand. Meanwhile, Scottish manufacturers post-production inventories deteriorated in the latest survey period. The rate of contraction was moderate overall and the slowest in 11 months. Q. Compare your stocks of finished goods in units this month with the situation one month ago Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: Stocks of purchases Black line: Stocks of finished goods Manufacturing: Quantity of Purchases and Supplier Delivery Times. Q. Compare the quantity of items purchased (in units) this month with the 2017 Feb Mar Apr May Jun Jul Buying activity increased at the sharpest rate in nearly three years in July. The rate of growth was marked overall and extended the current sequence of growth to six months. Approximately 22% of firms noted a higher quantity of items purchased, compared with only 16% which reported a decline. In response to increased purchasing activity, vendor performance deteriorated further in July, with anecdotal evidence pointing towards a lack of capacity at suppliers as a cause. Furthermore, delivery times lengthened to the greatest extent for four months, with the rate of deterioration being solid overall during the latest survey period. Q. Compare your suppliers' delivery times (volume weighted) this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month 25 Blue line: Quantity of purchases Black line: Suppliers' delivery times Slower deliveries Quicker deliveries Manufacturing: Input Prices and Output Prices Q. Compare the average price of your purchases (volume weighted) this month with the 2017 Feb Mar Apr May Jun Jul Despite input price inflation falling to its lowest in a year, the rate at which average cost burdens rose in the Scottish manufacturing sector remained sharp overall. The latest survey data extended the current sequence of softening inflation to five months. Firms commonly associated the exchange rate as the primary cause for increased input costs. In line with input price inflation, output charge inflation also eased in the latest survey. Furthermore, the rate of at which charge prices increased was the slowest in ten months. That said, output price inflation remained solid overall and above the series long-run average. Q. Compare the average price charged for your goods (volume weighted) this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: Input prices Black line: Output prices Increasing rate of inflation Increasing rate of deflation 3

4 Services: Business Activity and Employment Q. Compare your level of business activity (gross income, chargeable hours etc.) this month with the 2017 Feb Mar Apr May Jun Jul Growth of business activity in the Scottish service sector hit a 33-month high in July. The rate of growth was solid overall and extended the current sequence of expansion to three months. Anecdotal evidence suggested that increased tourism partly contributed to the latest expansion. July s survey signalled a solid improvement in the number of people employed in the Scottish service sector. Moreover, job creation hit a 31-month high, with the latest data marking the second month of expansion in a row. Firms commonly noted that they hired additional staff to meet to higher output requirements. Q. Compare the no. of people employed this month with the situation one month ago (treat two part-time as one full-time & ignore temps) Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: Business activity Black line: Employment Services: New Business and Business Outstanding Q. Compare the amount of new business at your company (whether already fulfilled or not) this month with the 2017 Feb Mar Apr May Jun Jul The level of new orders received by Scottish service sector firms increased at the fastest rate in 18 months during July. The rate at growth was moderate overall, but remained below the series historical average. A strong underling level of demand was noted by many panellists in the latest survey. July s survey data indicated a fall in the level of business outstanding in Scotland s service sector. The rate of contraction was sharper than that registered in the preceding survey and marked overall. Approximately 19% of firms noted a fall in backlogs of work, compared with 11% which reported a rise. Q. Compare the amount of business outstanding (i.e. work in hand but not yet completed) this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: Incoming new business Black line: Business outstanding Services: Average Costs/Input Prices and Average Prices Charged Q. Compare the average prices paid by your company for all purchases, wages/salaries etc. this month with the 2017 Feb Mar Apr May Jun Jul Average input costs faced by Scottish service sector companies increased at a marked pace in July. Furthermore, the rate of inflation was above the series long-run average. According to anecdotal evidence, wage inflation continued to impact the balance sheets of Scottish service sector firms. July s survey indicated that there was a rise in average prices charged in the Scottish service sector. Furthermore, the latest data extended the current sequence of growth to a year. That said, the rate of output charge inflation eased to its lowest in eight months. Q. Compare the average prices charged by your company (e.g. prices per service or unit of time) this month with the 2017 Feb Mar Apr May Jun Jul sa,.0 = no change on previous month Blue line: Input prices Black line: Output prices Increasing rate of inflation Increasing rate of deflation 4

5 August 14 th 2017 Services: Business Expectations Q. In 12 months' time, do you expect the overall level of business activity at your unit to be higher, the same or lower than now? 2017 Feb N/A Mar N/A Apr N/A May N/A Jun N/A Jul N/A Panellists operating in the Scottish service sector signalled a positive outlook towards future business activity levels in the next 12 months. Around 32% of firms reported that they expect their level of activity to rise, compared with only 11% which expect a fall. That said, the Business Expectations Index remained subdued in the context of historical data in July..0 = no change over next 12 months Increasing degree of optimism Blue line: Business Expectations Increasing degree of pessimism Bank of Scotland PMI: Notes and Methodology PMI surveys Purchasing Managers Index (PMI ) surveys are monthly surveys of carefully selected companies which provide an advance indication of what is really happening in the private sector economy by tracking variables such as output, new orders, employment and prices across both manufacturing and service sectors. The PMI surveys are based on fact, not opinion, and are the first indicators of economic conditions each month. The data are collected using identical methods in all countries and regions so that accurate comparisons may be made. Questionnaires are completed in the latter half of each month and are collected and processed by economists at IHS Markit. Respondents are asked to state whether business conditions for a number of variables have improved, deteriorated or stayed the same compared with the previous month. Index numbers Index numbers are calculated from the percentages of respondents reporting an improvement, no change or decline. These indices vary between 0 and 100 with readings of exactly.0 signalling no change on the previous month. About Bank of Scotland Bank of Scotland is part of Lloyds Banking Group, the UK s largest retail bank and Scotland s largest financial services employer. Established in 1695, Bank of Scotland is the UK s oldest surviving clearing bank. Our goal is to be the best financial services provider in Scotland. We believe this means we must build a leadership position not on the basis of scale but on the foundations of reputation and recommendation. Readings above.0 signal an increase or improvement; readings below.0 signal a decline or deterioration. Reasons given by survey respondents for any changes are analysed to provide insight into the causes of movements in the indices and are also used to adjust for expected seasonal variations. The indexes are seasonally adjusted to take into consideration expected variations for the time of year, such as summer holiday shutdowns and national holidays such as Christmas. IHS Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Purchasing Managers Index (PMI ) surveys are now available for over countries and also for key regions including the eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide upto-date, accurate and often unique monthly indicators of economic trends. To learn more go to Bank of Scotland The Mound Edinburgh, EH1 1YZ Tel: mairi.gordon@lloydsbanking.com About IHS Markit IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and experise to forge solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than,000 key business and government customers, including 85 percent of the Fortune Global 0 and the world s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth. Warning The intellectual property rights to the Bank of Scotland PMI provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information ( data ) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers Index and PMI are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. IHS Markit is a registered trademark of IHS Markit Ltd. 5