THE growth rate in Scotland's private sector has increased for a third month in a row, according to an economic survey which monitors more than 600 firms.

The latest Purchasing Managers Index (PMI) from Bank of Scotland showed rises in output, new business and employment.

The headline index, which covers the service and manufacturing sectors, nudged up to 51.4 in January which was an improvement on the 51.2 in December and the best since the 51.9 reported in September 2011.

The most recent rise was underpinned by growth in the service sector which was partly attributed to mild winter weather and new business wins increasing for the second month in succession.

Travel, tourism and leisure, financial services and business services were all in positive territory, however the latter saw its weakest monthly increase in output for 12 months.

Manufacturers reported their best new work order figures for five months mainly driven by domestic customers as exports continued to suffer from eurozone uncertainty and unfavourable exchange rates.

While average costs rose again – with food, fuel, some raw materials and utilities all up – there was an encouraging sign for the businesses community as input price inflation dropped to its weakest level since September.

The rate of job creation remains slower than the rest of the UK with gains in services offset by weaker trends in manufacturing recruitment which fell to its lowest level (50.5) in two years.

Donald MacRae, chief economist at Bank of Scotland, said: "The January PMI edged upwards suggesting the private sector of the Scottish economy continues to show modest growth. The first increase in new orders at manufacturers for five months was particularly encouraging.

"New export orders weakened but at the lowest rate for four months while the service sector grew for the 13th month in a row. The Scottish economy is struggling to maintain growth momentum in the face of a global slowdown but is, so far, avoiding a return to recession."

CBI Scotland's assistant director, David Lonsdale, said: "Economic conditions remain tough and the eurozone crisis has dampened confidence, but there are tentative signs that a few more indicators are now pointing in a positive direction.

"In his Budget next month the Chancellor should seek to build on this, by continuing to seek to balance the government's books, but also by improving the conditions for business growth. Without growth, unemployment will remain high, firms will be reluctant to invest, and the mammoth deficit in the public finances – let alone the national debt – will be even harder to bring down."

Finance Secretary John Swinney said: "There are some encouraging signs in this month's survey including the first increase in new manufacturing orders for five months.

Although the PMI has now

remained in positive territory for 13 months growth in Scotland is still lagging the rest of the UK.

The survey showed the UK was at 56.4 which was up from 53.2 in December.

The score of 50 shows the line between expansion and contraction.

Meanwhile accountancy firm BDO also published its monthly Business Trends report this morning which shows UK confidence has increased.

Neil Craig, office managing partner for BDO in Glasgow, said while prospects remain fragile the report is an "encouraging sign".