SCOTLAND’S private sector economy returned to growth in January, after contracting the previous month, a key survey has revealed.

Manufacturing output grew last month, but the services sector recorded a marginal decline in output in January, according to the Bank of Scotland PMI (Purchasing Managers’ Index) report.

The PMI for Scotland, a composite measure of manufacturing and services output, increased from 49.4 in December to 50.3 in January on a seasonally-adjusted basis. This took it back above the level of 50 deemed to separate expansion from contraction.

However, the index signalled Scottish growth was weaker than even the modest rate recorded for the UK private sector economy as a whole in January.

The UK output index fell from 54.9 in December to 53.5 in January.

Although the index was significantly ahead of that recorded in Scotland, the fall did signal a significant slowing of the UK growth rate last month from an already modest pace in December.

A composite measure of UK manufacturing, services and construction sector output in January, published last week by the Chartered Institute of Procurement & Supply, pointed to a quarterly growth rate of just 0.3 per cent.

The manufacturing output index in the PMI Scotland report dipped from 53.1 in December to 52.2 in January, to signal a slowdown in this sector, but it remained significantly above the 50 no-change mark.

The Scottish services activity index rose from 48.5 in December to 49.8 last month to signal a slowing of the pace of contraction of this key sector.

Overall, the PMI Scotland survey signals a modest rise in employment in the private sector economy north of the Border in January. The employment index rose from 50.8 in December to 51.2 in January.

Both the Scottish manufacturing and services sectors recorded growth in employment last month.

And, overall. manufacturing and services companies signalled their optimism about the prospects for activity to be higher on a 12-month view was the greatest for more than three-and-a-half years. Optimism rose in both the manufacturing and services sectors last month, the survey signals.

Fraser Sime, a director in Bank of Scotland’s commercial banking business, said: “Scotland started 2018 with renewed private sector business activity growth.

“The upturn was led by manufacturers, while service providers signalled a fractional decline in output.”

He added: “Both new business inflows and employment increased in the Scottish private sector, fuelling stronger business confidence. The degree of optimism in the future rose to a 43-month high in January.”

The survey signalled continuing cost pressures for Scottish manufacturers and services companies.

Cost pressures have in recent times been fuelled to a significant extent by sterling’s post-Brexit vote weakness, which has increased the cost of imports.

Manufacturers cited a rise in commodity prices as a key factor in an acceleration in the rate of increase of their costs last month.

The rate of increase of factory gate prices also accelerated in January, the survey shows.

Services companies also saw their costs rise at a faster rate in January. They highlighted higher food and fuel prices.

As cost pressures intensified, services companies increased their prices at a faster pace.