GROWTH of the Scottish private sector economy accelerated in May but remained modest, as services returned to expansion, a survey shows.

Bank of Scotland’s latest PMI (purchasing managers’ index) report signals the manufacturing sector north of the Border continued to expand strongly last month.

The overall private sector output index for Scotland rose from 50.6 in April to 51.5 in May on a seasonally-adjusted basis, moving further above the level of 50 deemed to separate expansion from contraction.

The pace of growth in the UK as a whole slowed between April and May but remained ahead of that in Scotland. The UK output index fell from 56.2 in April to 54.4 in May.

Growth in Scottish manufacturing output eased slightly between April and May but remained solid. The output index for this sector dipped from 56.1 in April to 55.3 last month.

The pace of growth of new orders in the Scottish manufacturing sector slowed sharply to a moderate pace, as levels of incoming export business fell for the first time in three months. The decline in new export orders was sharp.

Scotland’s services sector returned to albeit modest growth in May. This is the first time in three months that this key sector has shown expansion. The services business activity index rose from 49.2 in April to 50.5 in May.

However, employment in the Scottish services sector fell for the first time in three months in May as firms reported “a lack of availability of suitable staff to fill vacant posts”.

The survey shows a further surge in input costs for services companies, although the pace of increase reduced slightly. Companies, some of which cited upward pressure on salaries against a backdrop of rising consumer price inflation, continued to pass on higher costs to customers.

Annual UK consumer prices index inflation has surged on the back of the pound’s weakness following last June’s Brexit vote. It had by April climbed to 2.7 per cent, from 0.3 per cent in May last year.

Scottish manufacturers saw another surge in costs last month. Although the pace of increase eased slightly, it remained well above the long-run survey average.

Bank of Scotland said: “Anecdotal evidence suggested that the weak pound had contributed to an increase in the cost of raw materials for companies.”

This jump in costs led manufacturers to increase their average prices sharply again in May, although at a slightly slower pace than in April.

The rate of increase of Scottish manufacturing employment eased significantly between April and May, with this index dipping from 53.1 to 51.9.

Bank of Scotland highlighted positive sentiment about growth prospects, on a 12-month view, in both the services and manufacturing sectors north of the Border.

Fraser Sime, director of corporate banking at Bank of Scotland, said: “Latest PMI data signalled the Scottish private sector moving up a gear, as growth reached a three-month high. May’s upturn was driven by the service sector returning to expansion for the first time since February. In addition, the manufacturing sector remained strong, in line with predictions that the goods-producing sector will drive second-quarter growth.”

A separate survey published today by accountancy firm BDO shows the UK services sector has slowed to a standstill and is on the brink of shrinking.

Meanwhile, Visa today reports the first year-on-year fall in household expenditure since September 2013 on its measure. Consumer spending in May was down by 0.8 per cent on the same month of last year, it says.

The Visa survey flags pressure on household finances, amid surging inflation and weak pay growth.

Kevin Jenkins, Visa’s managing director for the UK and Ireland, said: “Consumer spending fell for the first time in nearly four years in May, following some marked slowdowns in growth since the beginning of the year. Our index clearly shows that, with rising prices and stalling wage growth, more of us are starting to feel the squeeze.

“Retailers of non-essential goods were among the worst hit, with clothing and household goods seeing sharp declines in sales.”