Oil Price Drop Leads To Uncertainty

Service companies have experienced a marked fall in new business as a result of uncertainly in the oil and gas industry, according to new research.

The latest Bank of Scotland PMI report found that levels of incoming business in the sector declined for the first time in two-and-a-half years in February, with manufacturing also experiencing a fall in new orders for a second successive month.

Both manufacturers and service providers recorded similarly weak increases in overall business activity, the report found.

Its headline figure for business activity improved to 50.2 during February, up from a 49-month low of 47.7 in January attributed to poor weather during the month.

The figure measures month by month changes in output in both the manufacturing and service sectors.

The report said: "Weighing on activity was a marked decline in incoming new business following a 26-month run of growth.

"As with activity, rates of change were similar in the manufacturing and service sectors.

"Moreover, reasons for the fall in new business were also alike: there were reports from panellists that the downturn in the oil and gas industry (emanating from the sharp drop in global oil prices) was having an adverse impact on business performance.''

In spite of stagnation in output during the month, service providers continued to boost staff levels, although there was a small drop in employee numbers at manufacturers for the second month in a row.

The report said companies were blaming a drop in turnover linked to falling levels of new business for the decline in payroll numbers, with some reports that leavers were not being replaced.

Donald MacRae, chief economist at Bank of Scotland, said: "Marginal growth returned to the private sector of the Scottish economy in February after a weather-induced contraction in January.

"New business recorded a fall in both the manufacturing and services sectors but employment continued to rise overall.

"This month's PMI suggests the Scottish economy has regained some but not all of the growth momentum lost at the beginning of the year.''

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