Private sector surges with manufacturers at forefront of Scots recovery

Manufacturers are leading the recovery as the latest Scottish purchasing managers index revealed goods producers recorded the strongest monthly rise in output since data was first collected in January 1998.

The Bank of Scotland PMI report for February also shows the biggest rise in activity across the entire economy since June 2007, although recovery in the services sector was "least robust".

Across all sectors, the seasonally-adjusted index rose to a 44-month high of 55.9, from 52.9 in January.

The report suggests the private sector economy in Scotland expanded faster than that in the UK as a whole for first time in six months. Respondents indicated that a return to "business as usual" following December's weather-related disruptions and growth in new order levels had driven the rise.

Both input and output price inflation remained strong, but moved back slightly from January's high point.

Donald MacRae, chief economist at Bank of Scotland, said: "This is a welcome second month of growth in the private sector of Scotland's economy following the winter downturn.

"Crucially, the services sector expanded with all three sub-sectors experiencing growth."

But he warned that growth needs to be maintained through the year, not just as the weather improves, to counter the effect of public spending cuts.

"The recovery continues to be uneven and least robust in the services sector," he added.

The Bank of Scotland's report comes as accountancy firm KPMG prepares to release its global business outlook survey, also showing that the majority of UK businesses are expecting to grow this spring.

A preview shows manufacturing sector optimism is at its highest in the eight-and-a-half-year history of the survey, with service providers also expecting to expand.

Craig Anderson, senior partner for KPMG in Scotland, said: "UK business now appears to be preparing itself for growth. Although recovery is by no means yet assured, there are enough positive signs to mean that businesses need to be planning for better times - or risk being left behind when they take hold."

But he said uncertainties over interest rates, oil prices and the impact of Middle Eastern unrest on international trade still hung over the recovery.

Anderson said a Budget with measures to encourage business "could really help to get growth off the ground".

But a note of caution was sounded by the latest business trends report by accountant and business advisor BDO, which indicated low growth prospects for the UK economy over the next six months.

BDO's index showed inflation climbed in February, and it urged the Bank of England not to raise interest rates in April or May, as that would in turn "put at risk an already fragile economy".