SCOTTISH companies faced growing cost pressures in September, fuelled by sterling’s post-Brexit vote weakness, as the private sector economy continued to grow at a modest pace, a survey shows.

Growth of employment in the private sector economy north of the Border meanwhile slowed sharply to only a marginal pace last month, according to the latest Bank of Scotland PMI (Purchasing Managers’ Index) survey published today.

Both the Scottish manufacturing and services sectors saw an acceleration of cost increases during September. Overall, Scottish companies’ costs rose at the fastest pace since May.

Fraser Sime, a director in Bank of Scotland’s commercial banking business, noted cost pressures had “intensified further in September, led by sterling depreciation and raw material price hikes”.

The seasonally-adjusted output index for the Scottish private sector economy was 52.2 in September, matching the reading for August and signalling continued modest expansion.

Growth of Scotland’s private sector economy remained adrift of that in the UK as a whole in September, the survey shows. The UK output index edged up from 54 in August to 54.1 last month.

The Scottish employment index dropped from 52.5 in August to 50.6 in September, staying only marginally above the level of 50 deemed to separate expansion from contraction. Employment growth was stronger in manufacturing than in services. The services employment index dropped from 52.6 to 50.2. And the employment index for manufacturing edged up from 51.9 to 52.1.

Scottish manufacturing growth eased slightly between August and September, with this sector’s output index decreasing from 54.2 to 53.3. However, the growth rate for this sector remained firmer than that for services. The services sector of saw a slight uptick in its pace of expansion last month, with its output index rising from 51.7 to 51.9.

Scottish manufacturers’ new export orders fell slightly in September, having risen in each of the previous two months.

The overall pace of growth of new business in the Scottish private sector economy accelerated in September.

However, the manufacturing sector saw a significant fall in new orders last month. The new orders index for manufacturing dropped from 50.7 in August to 47 in September. The new business index for the services sector rose from 52 to 53.7.

About 34 per cent of Scottish manufacturers reported higher average input costs in September, compared with less than two per cent recording a fall.

Bank of Scotland said: “Some companies attributed higher cost burdens to raw material price hikes and unfavourable exchange rate effects.”

The pace of increase of factory gate prices accelerated to its fastest in three months in September.

Highlighting a sharp rise in Scottish services companies’ costs last month, Bank of Scotland said: “Anecdotal evidence indicated that greater cost pressures stemmed from higher wages and steeper fuel prices.”

However, the rate of increase of prices charged by services companies eased, the survey shows.

Mr Sime said: “Scotland’s headline PMI remained unchanged from August at 52.2 in September, indicating stable private sector growth.

“Despite flatter momentum in output, new order growth picked up from August, signalling a modest rise. The upturn in new business, however, did not facilitate stronger job creation, with the rate of employment growth only slightly above the no-change mark.”