By Ian McConnell

GROWTH in Scotland’s private-sector economy ground to a near-halt in February as manufacturing returned to expansionary territory but services output declined, a key survey shows.

Royal Bank of Scotland’s latest Purchasing Managers’ Index (PMI) report, published today, also shows the first fall in private-sector employment north of the Border in four months.

Only six of the 12 nations and regions of the UK covered by the survey achieved a rise in private-sector employment in February. This was down from 11 in January.

The business activity index for Scotland – a composite measure of services and manufacturing sector output, dropped from 52 in January to 50.1 last month on a seasonally adjusted basis, marginally above the level of 50 deemed to separate expansion from contraction.

In spite of the sharp slowing of growth to a marginal pace, companies in Scotland were overall at their most optimistic in 20 months about the prospects for increased activity in a year’s time.

The business activity index for Scotland was adrift of that for the UK as a whole. The UK index dipped from 53.3 in January to 53 in February on a seasonally adjusted basis. Only Northern Ireland turned in a weaker performance than Scotland in February, posting a fall in activity.

London achieved the strongest expansion in February, followed by Wales and north-west England.

Growth of overall new business for Scotland’s private-sector economy slowed to a crawl in February. The new business index fell to just 50.2 last month, with companies citing weakness in foreign demand and further uncertainty.

Various surveys have in recent times flagged the impact of Brexit-related uncertainty on UK companies’ export business.

Scottish services companies achieved a rise in incoming business, while manufacturers’ new orders declined for an 18th consecutive month.

Royal Bank said survey respondents had linked the decline in employment in Scotland to the non-replacement of leavers and weaker client demand.

However, it noted the decline in employment was “only mild overall”. Employment rose in manufacturing but fell in services.

Malcolm Buchanan, who chairs Royal Bank’s Scotland board, said: “The Scottish private sector neared stagnation during February, with only a fractional rise signalled by the headline business activity index, as renewed growth in manufacturing was largely offset by a mild reduction in service sector activity.

“Overall new business increased only fractionally, amid reports of weak foreign demand and further uncertainty weighing on growth, while some firms responded to softer demand conditions by not filling vacancies.”

Royal Bank noted signs that increased confidence among Scottish companies about future activity reflected hopes of stronger demand from clients. However, the bank noted that, although confidence was at a 20-month high, it was relatively weak in a UK context.

Mr Buchanan said: “On a positive note, business confidence climbed to a 20-month high. Nonetheless, sentiment in Scotland was the second-lowest across the 12 monitored UK areas, with only Northern Ireland reporting a softer outlook.”