BUSINESS optimism in Scotland’s private sector reached a 43-month high in January, according to the Bank of Scotland’s latest Purchasing Managers’ Index (PMI).

It showed economic activity expanded slightly, along with broader expansions in employment and new orders.

The headline Bank of Scotland PMI – a single-figure measure of the monthly change in manufacturing and services output – registered 50.3 in January, up from 49.4 in December.

Scottish private sector firms reduced activity fractionally, but the pace of contraction weakened and was marginal.

Order book volumes expanded across the private sector in January, new business rose markedly in manufacturing, supported by new customer wins and renewed export growth.

In the service sector, successful tendering contributed to higher order intakes. Higher staffing levels enabled private sector firms to clear outstanding business, reducing backlogs of work.

Firms took advantage of stronger demand and raised output prices in January and selling charges rose by their sharpest extent in five months. That said, input cost inflation outstripped that of output prices to a marked degree, thereby signalling a squeeze to private sector profit margins.

Fraser Sime, regional director, Bank of Scotland Commercial Banking, said: “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. With improved demand conditions, firms raised prices for an 18th straight month. That said, input cost inflation remained far greater than that of selling prices, indicating tighter profit margins.”

Economy Secretary Keith Brown added: “This survey signals a positive start to 2018 for Scotland’s private sector.

“However, it cannot be stressed enough that Brexit remains the single biggest threat to our economy. Our latest analysis shows a hard-Brexit could cost Scotland’s economy £12.7 billion a year by 2030, so we continue to use all of the powers at our disposal to grow our economy.”