THE fragile recovery in Scotland's private sector economy lost momentum in March when growth slowed to a four-month low, although employment increased slightly.

The findings of the latest Bank of Scotland PMI show firms in both the services and manufacturing sectors struggled to make headway in the face of weak demand and renewed cost pressures.

The headline output index fell from 52.5 in February to 51.1 in March, the lowest reading since November.

Donald MacRae, chief economist at Bank of Scotland, put a positive spin on the figures, which he said suggested Scotland still remained in recovery mode.

"The PMI has now been above the 'no-growth' level of 50 for six consecutive months, suggesting the Scottish economy is continuing its slow recovery from recession," said Mr MacRae.

However, the findings indicate the private sector in Scotland is struggling to increase activity at the rates required to compensate for deep cuts in public spending.

These cuts are expected to weigh heavily on Scotland.

Growth in Scotland's private sector lagged the UK in March.

The PMI indicates the manufacturing firms which ministers hope will help re-balance the economy to make Scotland less reliant on financial services are facing big challenges, with orders stagnating at home and overseas. Problems in the eurozone have hit demand in some key export markets.

Bank of Scotland said the PMI findings suggested Scottish factory output declined for a ninth consecutive month in March. By contrast, the services sector increased activity for the 27th month running.

But the growth rate slowed from the 10-month high recorded in February to the lowest rate since last November.

The latest rise in new business was the weakest in four months.

The problems posed by weak demand in March were compounded by a fresh spike in the cost of key inputs like fuel, labour and food. Input costs rose at the fastest rate in 14 months for manufacturers and in seven months for services firms.

Bank of Scotland said private sector job creation picked up in March, to the fastest rate in eight months. But it noted: "Services and manufacturers alike recruited additional staff, with employment rising at equally modest rates across both sectors."

Ministers on both sides of the Border have faced calls to do more to stimulate growth. On Thursday, Scottish Chambers of Commerce said its first quarter survey showed firms across all sectors except oil and gas identified lack of demand as the key blockage to future growth.

It warned: "There are clear signs the economy is continuing to bump along a path of little or no growth and further action may be required by government to stimulate demand."

Yesterday, Homes for Scotland, which represents housebuilders, said the Scottish Government needed to ease the regulatory burden which it claimed "threatens to place Scotland at significant economic disadvantage to England".

The Scottish Government said it was investing in jobs and training to ensure it had the most competitive business environment in the UK. A spokesman added: "Our budget includes a tax relief package for business worth over £540m this year and we are bringing forward a further £385m package of economic stimulus to support jobs across the country."

The Scottish Government will publish details of fourth quarter Gross Domestic Product on Wednesday. Scotland's GDP increased by 0.6% in the third quarter, compared with the preceding quarter. GDP increased by 0.9% in UK.

However, GDP in Scotland increased by 0.4% on the same period of 2011, compared with 0.1% in the UK.

The PMI output index increased to 51.4 in the UK in March, from 51.2 in February.

In Scotland, the services activity index fell to 51.8 in March from 53.6 in February. The new business reading fell to 51.1 from 53.8.

The manufacturing output index fell to 49 from 49.5.