SCOTTISH economic output contracted for a second consecutive month in August amid continued oil sector weakness, and the plunge in sterling following the Brexit vote has ramped up companies’ cost burdens, a key survey shows.

Scottish manufacturers’ costs rose in August at the fastest pace in 59 months.

The latest Purchasing Managers’ Index report, published today by Bank of Scotland, shows the pace of contraction of the Scottish private sector economy accelerated slightly between July and August to its fastest pace since March.

The Scottish economy has contracted in each of the two full months following the Brexit vote. However, Bank of Scotland cited signs that the oil and gas downturn was a crucial factor behind weakness in the key services sector.

Output in the Scottish services sector fell in August at the fastest pace in 19 months.

The headline output index for Scotland’s private sector economy fell from 49.2 in July to 49.1 in August on a seasonally-adjusted basis, remaining stuck below the level of 50 deemed to separate expansion from contraction. It was adrift of the index for the UK as a whole, which rose from 47.5 in July to 53.6 in August.

Surveys of services, manufacturing and construction activity published by the Chartered Institute of Procurement & Supply have shown that, overall, the UK economy stagnated in the two months following the Brexit vote.

The Bank of Scotland report shows overall new business for companies north of the Border contracted for a second consecutive month in August, although the rate of decline eased slightly.

Scotland’s services sector has now contracted for four consecutive months, according to the survey.

Bank of Scotland said: “According to anecdotal evidence, the drop in output reflected the continued downturn in the oil and gas sector.”

However, the Scottish manufacturing sector returned to albeit modest growth in August, with companies citing greater demand from abroad amid the sterling weakness. Scottish manufacturers’ new export orders rose in August at the fastest pace in 64 months, having tumbled in July.

However, Scottish companies’ costs, overall, rose at the fastest pace for four months in August, with the pound’s weakness cited as a key factor.

Referring to the surge in cost burdens for the manufacturing sector north of the Border, Bank of Scotland said: “Several firms commented that higher import costs had led to the overall increase in average cost burdens.”

Noting costs in the services sector had risen at their fastest pace in three months in August, Bank of Scotland said: “There was some evidence that the rise in average cost burdens reflected a combination of higher fuel prices and a depreciation of sterling.”

Factory gate prices in Scotland meanwhile rose in August at the fastest monthly pace since September 2011, according to the survey.

Meanwhile, average prices charged by Scottish services companies increased in August at the fastest pace in 21 months.

Overall, Scottish firms’ output prices rose at the sharpest rate in 25 months in August.

Even though services output in Scotland dropped in August, firms in the sector increased staffing at the fastest pace in 15 months.

Bank of Scotland said that, while employee numbers increased at a marked pace among financial services, and travel, tourism and leisure firms, headcounts were reduced at business services providers.

The Scottish manufacturing sector meanwhile notched up its fastest rate of job creation in 21 months, with 14 per cent of companies recording a rise in their headcounts and seven per cent registering a decline. However, this overall increase followed a reduction in manufacturing sector headcount in July.

Overall, the Scottish private sector workforce increased in August at the fastest pace for 17 months.

Nick Laird, who leads Bank of Scotland’s commercial banking operations north of the Border, said: “Scotland’s economic performance continued to face headwinds during August, as the private sector remained in contraction. Both output and new business fell for the second month in a row, while Scottish firms faced further cost pressures.

“It was good news for jobs and selling though, with the rates of increase in workforce numbers and output prices both up, to 17-month and 25-month highs respectively.”