Scotland was a “standout” performer among the UK nations and regions last month, with its private sector economic growth accelerating to the fastest pace in two years, a key survey shows.

This strong showing is revealed in the latest PMI (purchasing managers’ index) report from Royal Bank of Scotland, published today.

The survey shows that Scotland’s private sector growth in May was second-fastest among the UK’s 12 nations and regions, behind only Northern Ireland and ahead of London. The acceleration of growth in Scotland contrasted with a slowing of expansion in the overall UK private sector economy last month.

Sebastian Burnside, chief economist of Royal Bank of Scotland, said: "Although growth slowed at the UK level in May, this masked a more balanced performance geographically as business activity rose in all nations and regions for the first time in over a year.

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“The month's standout performers were Northern Ireland and Scotland, where rates of expansion went against the trend and accelerated. London has been leading the recovery up to now, but growth in the capital lost some momentum in May and was more aligned with the overall UK rate.”

Employment growth in Scotland was third-fastest among the UK nations and regions, behind only Northern Ireland and north-west England, accelerating in May to its fastest pace in three months.

The headline business activity index for Scotland– which measures the month-on-month change in the combined output for Scotland’s manufacturing and services sectors – rose to 55.2 in May from 53.8 in April on a seasonally adjusted basis. A reading of more than 50 signals expansion.

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Royal Bank noted this signalled that private sector activity in Scotland expanded for the fifth month running and at the strongest pace in two years.

However, it highlighted a continuing decline in manufacturing, with the growth in May driven by services.

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Royal Bank said: “Underlying data again showed that growth across Scotland's private sector was achieved on the back of improving demand for services, which also helped mask the downturn observed in manufacturing.

“As a result, jobs growth and backlog accumulation was limited to service firms.”

Judith Cruickshank, who chairs Royal Bank’s Scotland board, said: “The Scottish private sector exhibited further gains midway through the second quarter. The upturn was contingent on the sustained rise in services activity, which rose at a sharp and quicker rate and was vital in offsetting the shortfalls seen at manufacturers.

“Moreover, the divergence between the two sectors is set to persist as manufacturing new orders fell rapidly, while demand trends improved for services. May data also signalled a faster rate of job creation and a fresh rise in outstanding business. However, these upturns were again fuelled by the service sector.”

She added: “While the service sector looks set to expand in the coming months as expectations for future activity strengthen, the manufacturing sector will only hold back growth momentum, unless demand for goods picks up.”

Royal Bank noted that, after a year of continual decline, the level of order backlogs at companies in Scotland rose, albeit fractionally, in May.

It said: “Underlying data highlighted pressures on capacity largely fed through from the service sector. Firms here linked the upturn to additional business from existing and new clients. Meanwhile, manufacturers depleted their backlogs rapidly.”

Royal Bank observed that, “alongside Scotland, London was the only other area which recorded a rise in the level of outstanding business”.