By Daniel Hunter

The health of the Scottish private sector economy continued to improve in February, according to the latest Bank of Scotland PMI report.

Data pointed to solid growth in both business activity and inflows of new work, which in turn contributed to further job creation north of the border. Costs pressures facing businesses rose, however, leading to a slight increase in average output prices over the month.

February saw the Bank of Scotland PMI climb to an eight-month high of 52.5, from 52.3 in January. This signalled a further solid (and slightly accelerated) expansion in private sector business activity, extending the current sequence of growth to five months. As was the case in January, Scotland registered a sharper increase in output than the UK as a whole.

The volume of new work placed with businesses operating north of the border increased for the third month running in February. Furthermore, the rate of growth was unchanged from the solid pace registered in the preceding survey period. Meanwhile, there was a slight rise in new export orders received by manufacturers over the month, offsetting January’s marginal downturn.

Scottish private sector businesses continued to recruit additional staff during February, meaning that employment has now risen for three consecutive months. The rate of job creation was equal to that registered in the month before, and in line with the UK-wide average. In contrast to the trend seen in recent months, it was manufacturers rather than services firms who led the increase in employment in Scotland.

February data pointed to a renewed decline in the amount of outstanding business at Scottish firms, after levels stabilised in the opening month of the year. The rate of depletion was only modest, however, and slower than in each of the ten months leading up to January.

Input price inflation accelerated from January’s seven-month low during the latest survey period, and was the fastest since last November. Where a rise in operating costs was recorded, this was in part linked by respondents to higher fuel and labour costs. Service providers again saw a more marked rise in cost burdens than manufacturers.

Output prices in Scotland’s private sector economy rose on average for the sixth time in the past seven months, albeit only modestly.

"February’s PMI rose to an eight- month high signalling continuing improvement in output and business activity during the month. The manufacturing sector recorded a modest rise in employment while services maintained job numbers," Donald MacRae, Chief Economist at Bank of Scotland, said.

"The increase in new orders both in the domestic economy and for exports is particularly welcome. These results provide further evidence that the Scottish economy is avoiding a “triple dip” and has started 2013 in growth mode.”

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