Scottish private sector economic growth slowed sharply in June as services sector expansion cooled, a key survey shows.

And the expansion rate north of the Border slipped below that of the UK as a whole last month, according to the latest growth tracker published today by Royal Bank of Scotland.

Nevertheless, Scotland was in the top half of the growth league table for the 12 nations and regions of the UK, in sixth spot.

Scotland outperformed Yorkshire & Humber, south-east England, and Wales, which all saw declines in combined services and manufacturing output in June, and the East of England, East Midlands and West Midlands, which all recorded weaker growth than that north of the Border last month. The declines in activity in south-east England and Wales in June were marginal.

Meanwhile, the survey, previously badged as the PMI (purchasing managers’ index) report, signalled further signs of easing of the downturn in Scotland’s manufacturing sector, in which output was “broadly stable” in June.

Scotland had been hailed as a “standout” performer in May in the previous monthly survey. Scotland’s private sector economy was in May second only to that of Northern Ireland in the table of growth rates for the UK nations and regions. Scotland and Northern Ireland bucked the trend in May by achieving an acceleration in expansion.

The growth tracker published today shows the headline business activity index for Scotland’s private sector economy fell from 55.2 in May to 51.9 last month on a seasonally adjusted basis, “reflecting the recent cooldown in service sector activity”. While the latest reading is still above the level of 50 deemed to separate expansion from contraction, the fall in the index signals a sharp slowdown in growth.

The business activity index for the overall UK private sector economy in June was 52.3.

Employment in Scotland’s private sector economy continued to rise in June but at the second-weakest rate since the current run of expansion began in February 2023, the survey showed.

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Overall cost burdens for Scottish companies rose at the weakest rate in 40 months in June. Apart from south-east England, all other UK nations and regions experienced a faster increase in input prices than Scotland in June.

The slowdown in growth of private sector output in Scotland in June was accompanied by a fresh fall in new business, which was the first such decline recorded in five months.

Scottish companies remained optimistic overall about the prospects for increased business activity on a 12-month horizon. The level of confidence on this front eased “slightly” last month but it was broadly in line with the long-run average trend.

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Royal Bank said: “Businesses were hopeful that demand conditions would improve in the coming months, and planned to raise their advertising and investment.”

Judith Cruickshank, who chairs Royal Bank’s Scotland board, said: "The Scotland growth tracker signalled modest gains in private sector activity during the latest survey period. While the upturn lost momentum, as the service sector observed a notable cooldown in June, the ongoing downturn in the manufacturing sector showed further signs of easing as output was broadly stable and the downturn in new orders moderated. Additionally, private sector companies continued to raise their staffing levels, albeit the latest uptick was fractional overall.”

She added: “Price pressures continued to abate as the year progressed. Cost burdens rose at the weakest pace since February 2021, and the rate of charge inflation equalled the weakest seen over the same period. Some firms were keen to price competitively in order to generate new sales.”

Sebastian Burnside, chief economist at Royal Bank, said: "Our regional growth tracker shows that most parts of the UK continued to see business activity expand in June, with one or two pockets of real strength. London and Northern Ireland topped the latest rankings, and it's these two that have recorded the strongest average growth so far this year.

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"At the other end of the scale, the only notable decrease in activity at the end of the second quarter was seen in Yorkshire & Humber, which the growth tracker shows has generally underperformed for the best part of a year. Demand conditions varied across the UK in June. The number of nations and regions reporting growth in new business fell, although this masked some stronger performances, especially in Northern Ireland and London, but also in the north-west and south-west [of England].”

He added: "Business expectations took a bit of a hit almost universally in June, reflecting uncertainty ahead of the General Election. Encouragingly, however, most areas saw employment rise as businesses continue to forecast growth in activity over the coming year.

"An acceleration in output charge inflation across most parts of the UK in June shows continued stickiness in prices, which might give policymakers some pause for thought on interest rate cuts."