The Scottish economy has been dragged down by a receding manufacturing sector which recorded its weakest output of the year, according to new research.

Confidence measured in July is at its lowest since January as companies continue to deal with difficult trading conditions.

The purchasing managers’ index (PMI) collated by Royal Bank of Scotland takes responses from more than 500 companies to provide a monthly insight into trends.

Confidence in Scotland was the lowest of the 12 UK regions and nations monitored in the PMI series. Rising interest rates, slowing demand and the cost of living were cited as factors that had weighed on the outlook. Scottish companies were less likely to have hired new staff, with employment growth below the UK average.

Judith Cruickshank, chairwoman of the Scotland board at RBS, said: “The start of the second half of the year saw a slowdown across the Scottish private sector amid a softer expansion in output, while new business remained broadly unchanged from June.

“Data split by sector highlighted that growth was skewed towards the services sector. Goods producers pointed to a continual and accelerated drop in factory orders, which then fed into a fresh contraction in manufacturing production.”