Scotland was the second-best performer among the 12 UK nations and regions in September in terms of its private sector economy, even though business activity north of the Border contracted slightly, a survey reveals.

And only Scotland and Northern Ireland recorded growth in private-sector employment last month, according to Royal Bank of Scotland’s latest PMI (purchasing managers’ index) report published today.

Only London managed to eke out growth in business activity in September, the survey shows. The decline in activity in Scotland was the first fall north of the Border since January.

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Scotland’s business activity index, which covers private-sector manufacturing and services, fell from 50 in August to 49.3 in September on a seasonally adjusted basis, signalling a marginal decline. The 50 mark is deemed to separate expansion from contraction. The decline in business activity UK-wide was steeper, with this index dropping to 48.5 in September.

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The rise in employment in Scotland’s private-sector economy in September was the eighth consecutive monthly increase.

Royal Bank said: “Panellists mentioned raising payroll numbers to return to pre-Covid levels.”

However, it added that underlying data showed job creation in Scotland was limited to the services sector and was marginal overall.

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Overall business confidence among Scottish private-sector companies, in terms of expectations of increased activity in a year’s time, remained strong in September, Royal Bank noted.

The bank added: “Sentiment improved to a three-month high, with firms expecting growth in activity stemming from hopes of improved demand conditions, launch of new products and general market growth. Nonetheless, fears of increased competition and inflationary pressures resulting in fewer sales meant confidence levels remained historically muted.”

Judith Cruickshank, who chairs Royal Bank’s Scotland board, said: "The third quarter ended with a fresh contraction in business activity across Scotland’s private sector, thereby marking the first fall in output since the start of the year.

"The downturn in activity was unsurprising, as indicated by falling demand for Scottish goods and services for the third successive month in September. This, coupled with historically muted expectations for the outlook for output, signals a weak fourth quarter. Whether the downturn will gain momentum or if demand trends can be reversed will be something to watch for in the coming months."

She added: "In some positive news, cost burdens rose at the weakest pace in over two-and-a-half years. Cooler price pressures should eventually lead to renewed demand."

Sebastian Burnside, Royal Bank of Scotland chief economist, said: "September's PMI results paint a rather gloomy picture of the health of the UK's regional economies, with business activity falling almost universally during the month.

"London is an outlier, having recorded a further increase in output at the end of the third quarter, driven by resilient demand across the capital. But as a general rule, there's been less and less pressure on business capacity in recent months due to a slowdown in demand, so it isn't a shock to see employment start to fall across most areas.”

He added: “Latest data on firms' expectations for future activity were a little more encouraging, with confidence even ticking up in a small majority of the regions and nations covered by the survey.

"Easing cost pressures are a reason for optimism. Rates of increase in firms' input prices slowed across the board in September, which should feed through to lower inflation generally in the months ahead."