PRIVATE sector output achieved a “modest expansion” last month as companies overcome rising input costs, a study has found.

The purchasing managers’ index (PMI) by the Bank of Scotland for September showed a slight upturn, taking the sector into its 10th consecutive month of expansion.

Manufacturing output grew at the slowest pace, while service sector activity rose at a faster pace, compared with the findings for August.

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Service providers reported a “solid increase” in the number of new orders placed, with the rate of expansion at its quickest in almost three years.

While many firms reported an increase in new business, the manufacturing sector suffered a “marked contraction”, the first decline recorded since last October.

The study put confidence at a three-month high, with more than 30 per cent of firms predicting higher business activity in 12 months’ time, almost nine per cent forecasting a dip and more than 60 per cent expecting no change.

The gains come at a time when companies are still grappling with increased cost pressures. The report said: “In line with the trend over the past 18 months, input price inflation remained sharp in September, picking up to its quickest pace since May. Respondents noted that adverse exchange rate effects and raw material price hikes intensified cost pressures across the Scottish private sector.”

Output prices have now grown for 14 months in a row, but the latest change was at a slower rate than in August. However, the rising confidence, new business and conservative growth has failed to translate into good news for jobseekers.

Although headcount continued to rise, recruitment has reduced to its lowest rate in the past four months. According to the report: “Latest composite employment data signalled the slowest rate of growth in staff numbers in the current four-month period of rising headcounts.

“Service sector job creation softened for a second successive month, with the rate of expansion only marginal. Manufacturing firms, meanwhile, hired additional staff at a modest pace, with growth picking up slightly from August.”

Fraser Sime, regional director at Bank of Scotland Commercial Banking, said: “Scotland’s headline PMI remained unchanged from August at 52.2 in September, indicating stable private sector growth. Despite flatter momentum in output, new order growth picked up from August, signalling a modest rise.

“The upturn in new business, however, did not facilitate stronger job creation, with the rate of employment growth only slightly above the no-change mark. Although cost pressures intensified further in September, led by sterling depreciation and raw material price hikes, output prices remained relatively modest. Nonetheless, business confidence over the coming 12 months remained buoyant.”

Economy Secretary Keith Brown said: “These results further demonstrate the strength of the Scottish economy, with recent GDP figures showing continued growth over the second quarter of the year and employment at a record high.

“While this is encouraging, Brexit uncertainty continues to cast a shadow over the future economic outlook, threatening jobs, investment and living standards. The Scottish Government will continue to use all of the powers at its disposal to grow the Scottish economy.”