SCOTLAND’S private sector economy moved back into growth mode in March as business activity was boosted by a modest rise in new orders, while companies across the board were forced to contend with another month of sharp price inflation.

The latest Bank of Scotland PMI (Purchasing Managers’ Index), published today, edged into positive territory in March, having given a negative reading the month before.

The seasonally-adjusted index, a single-figure measure of the month-on-month change in manufacturing and services output, gave a reading of 50.8 for March, the first month of expansion since October. The reading was recorded at 49.5 in February

However, despite the return to growth, output in Scotland again lagged the expansion seen across the UK as a whole, which measured 52.5 in March.

A reading of 50 separates expansion from contraction on the index, which is compiled by market analyst IHS Markit.

The report suggested growth was driven by the country’s dominant service sector, which expanded after a four-month run of contraction.

However, the woes continued for manufacturing, where output dropped for a second month in succession during March.

The PMI for services was measured at 51.3 in March, up from 49.7 in February. It had last given a positive reading in October when it was measured at 52.6, with growth in March underpinned by new business wins. The survey said services firms started hiring again in March, reversing a marginal cut-back seen in February, with the rate of job creation at its strongest since August. Firms put the growth in employment down to forecasts of increased demand. New order receipts increased in services for a third month in a row in March, and accelerated to a “modest pace”, boosted by export sales and new client acquisitions.

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Meanwhile, the PMI for manufacturing output gave a negative reading for a second consecutive month, having been measured at 48.9 in March. The reading was 48.8 in February.

While panellists reported that adverse weather conditions had reduced their production capabilities, the report observed that the rate of contraction was slight overall and “fractionally weaker than that seen in February”.

Moreover, it suggested that business confidence strengthened in March, with the level of positive sentiment reaching a 34-month high. That came as firms said they anticipated launching new products and improved demand from their customers.

Service providers and manufacturers both faced a further month of price inflation, a persistent trend since the value of the pound collapsed in the wake of the Brexit vote of June 2016.

The report observed that the strongest rate of price inflation was seen in the services sector, a trend in evidence since January. Panellists reported higher food, fuel and labour costs, with firms taking steps to raise output prices to combat margin erosion. The rate at which prices were increased was at its fastest since May last year. According to the survey, the rate of cost inflation for manufacturers surged to an 11-month high in March. Higher oil and metal prices contributed to the latest round of cost increased, based on anecdotal evidence.

Fraser Sime, regional director of Bank of Scotland, said: “Scottish private sector output increased at the fastest rate in five months during March. Although a mild pace of expansion, it was underpinned by the first activity upturn in the services sector since October last year. Employment returned to growth amid a renewed inflow of new work. Survey respondents gained confidence from the positive business conditions, with optimism strengthening.”