A SPIKE in new business helped increase activity in Scotland’s private sector last month, according to a new study.

The Royal Bank of Scotland Purchasing Managers’ Index (PMI) reported a rise in January following no growth in December. Key to the renewed expansion was an upturn in new business, following a contraction in the previous survey period, alongside a mild rise in workforce numbers.

The seasonally adjusted headline RBS Business Activity Index – a measure of combined manufacturing and service sector output – posted 52.0 in January, up from 50.0 in December, signalling a modest increase in Scottish private sector activity following stagnant output in December. Panellists linked the increase with improved client demand. However, the upturn was smaller than the overall UK level.

By sector, service providers recorded an eighth successive monthly rise in activity, with growth accelerating from December. Output continued to fall in the manufacturing industry, though the fractional decline was the least pronounced in the current eight-month sequence of reduction.

Overall, demand conditions rebounded in January. Anecdotal evidence linked the rise in incoming new business with improved client demand due to improved confidence and less uncertainty.

Yet the rate of increase was only mild overall, with only the south west of England reporting a smaller increase than Scotland in areas where there was an upturn. Northern Ireland and the north east of England were the only areas to endure declines.

Nevertheless, the level of positive sentiment towards private sector business activity over the next 12 months reached a 10-month high.

Chair of the Scotland board at RBS, Malcolm Buchanan, said the results gave cause for optimism.

He commented: “The Scottish private sector recorded a modest increase in business activity during January, with the headline Business Activity Index reaching a 14-month high, driven partly by a renewed rise in new business. That said, the uptick remained historically subdued and softer than that seen across the UK as a whole."

The bank chief continued: “At the sector level, services recorded a quicker increase in activity, whilst the manufacturing segment remained weaker, noting an eighth successive fall in output.

“Positively, firms’ output expectations for the coming 12 months strengthened in January, with respondents linking confidence to a clearer outlook and hopes of improved demand conditions. Moreover, the level of positive sentiment was the highest since March 2019.”

Amid improved demand, Scottish private sector firms recorded a rise in workforce numbers during January. The rate of increase was only marginal, however.

The level of outstanding business at Scottish private sector firms fell, as has been the case in all but one of the past 16 months. The rate of backlog depletion also gathered pace from December.

On the price front, cost burdens facing Scottish private sector firms increased further during January, with respondents noting greater costs for fuel and raw materials as well as higher prices at suppliers. The rate of cost inflation was the fastest for seven months.

Higher input costs were partially passed through to clients during January, as the report found selling prices increased at the quickest rate for eight months.