Royal Bank of Scotland PMI report for December 2022

Private sector activity contracts at softer pace in December

Key findings

  • Private sector output falls for fifth month running
  • Contraction in new work remains solid
  • Employment falls for first time in 21 months

The Business Activity Index - a measure of combined manufacturing and service sector output - improved from November's recent low of 43.9 to 48.3 in December, signalling the softest downturn in activity in the current five-month sequence of reduction. Similarly, while new work received fell strongly in December, the pace of decrease was softer than that recorded in the previous survey period. That said, the ongoing drop in business requirements amid challenging demand conditions resulted in the first fall in employment in 21 months. Moreover, as backlogs of work continued to decrease and expectations moderated further.

Demand shortfalls continued to lead a decrease in new work received across Scotland's private sector in December, thereby extending the run of contraction to six successive months. While the rate of decline eased from November's recent low, it was solid overall. The cost of living crisis, higher interest rates and growing economic uncertainty were all linked to the loss in client appetite. 

Moreover, the downturn in incoming new business across Scotland was stronger than that recorded at the UK-level. 

Sentiment across the Scottish private sector ticked down for the second month running during December. The latest reading was the second weakest in 31 months and comfortably below the historical average. The war in Ukraine, a slowdown in the housing market and inflation weighed heavily on confidence. 

Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, commented:

"The Scottish private sector recorded another grim performance during December. Client appetite suffered as various economic headwinds continued to dominate the business environment. That said, the downturn across Scotland visibly eased from November, as both private sector output and new work received fell at softer paces.

"Moreover, the loss in demand helped to relieve price pressures, with slower rates of inflation seen for both input costs and output charges. Nonetheless, these remain well above their respective historical averages. 

"As we move into 2023, it will be important as to how firms adjust to demand shortfalls. We have already noticed the first reduction in employment since March 2021. Moreover, amid a high inflation and interest rate environment, it will be difficult to revive demand and thus will be the primary concern for businesses." 

Please see the regional reports in full:

UK National (PDF, 250KB)

North East (PDF, 370KB)

North West (PDF, 370KB)

Yorkshire and the Humber (PDF, 400KB)

East Midlands (PDF, 400KB)

West Midlands (PDF, 380KB)

East of England (PDF, 400KB)

London (PDF, 350KB)

South East (PDF, 400KB)

South West  (PDF, 380KB)

Scotland (PDF, 370KB)

Wales  (PDF, 380KB)

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