Scotland's economic performance was joint-third-best among the 12 UK nations and regions in August, even though activity stagnated, a key survey shows.

Royal Bank of Scotland’s latest purchasing managers’ index (PMI) report, published today, shows the private sector economy north of the Border failed to record growth in activity for the first time in seven months in August.

The business activity index for Scotland fell from 51.1 in July to 50 in August on a seasonally adjusted basis. A reading of 50 signals no change.

Wales and London achieved modest growth in business activity last month. Like Scotland, the West Midlands recorded stagnation.

The other eight nations and regions experienced a fall in private sector activity in August.

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Sebastian Burnside, chief economist at Royal Bank, said: "Economic malaise is beginning to set in across a growing number of UK regions, with the majority reporting a decrease in business activity in August amid a near-universal drop in demand. Only a couple of areas have managed to keep their heads above water and record marginal growth, namely Wales and London, while activity levels across the West Midlands and Scotland stagnated.”

Scotland recorded the second-fastest growth in private sector employment in August, behind only Northern Ireland.

Meanwhile, Scotland posted the least-steep fall in backlogs of work in August.

Private sector firms in Scotland continued overall to predict growth in activity on a 12-month view in the latest survey, but signalled continuing skills and labour shortages.

Royal Bank said: “Hopes of improved demand conditions and customer growth, as well as increased marketing, fed into greater expectations. However, the degree of confidence ticked down to an eight-month low in August as the current economic climate, inflation and scarcity of suitable candidates resulted [in] historically subdued confidence levels.”

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It added that Scottish firms’ optimism about the prospects for increased activity on a 12-month view was the third-weakest among the UK nations and regions, exceeding only north-east England and Northern Ireland.

Royal Bank observed that, following the “broad stagnation” of new business across Scottish private sector firms in July, August data revealed a “modest contraction”.

It added that service providers had posted the first decline in new orders in seven months in Scotland, while manufacturing new orders fell for the fifth month running and at a “marked pace” north of the Border.

The bank observed: “According to anecdotal evidence, the latest fall in new business was attributed to inflation, economic uncertainty and the cost of living all having pressed demand.”

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Scotland, however, performed better than Northern Ireland and seven English regions on the new orders front.

Judith Cruickshank, who chairs Royal Bank’s Scotland board, said: “The latest PMI data for Scotland pointed to emerging weakness in the Scottish private sector, with firms signalling no change in private sector output and new orders contracting modestly amid reports of economic uncertainty and falling demand. Declining business requirements could result in a reduction in output unless the demand picture improves.

"Moreover, higher material, labour and energy costs meant that firms continued to struggle with rising cost burdens. In turn, companies raised their charges for the provision of goods and services. Lastly, business confidence around the year-ahead outlook remained historically subdued and weakened to an eight-month low, as frail demand conditions, higher interest rates and inflation all weighed on expectations."