A slower rate of decline in output in Scotland’s private sector has offered a hint of optimism for the year ahead.

The softer contraction from 46.9 in December to 49.6 in January was driven by a renewed uplift in services activity which partly offset a further decline in manufacturing production.

However, Scottish firms continued to shed jobs at the start of 2025, after December data signalled a drop in employment for the first time in almost two years. Services joined manufacturing in registering lower staffing.

Private sector companies once again reported a decrease in new work intakes in January, with companies signalling lower client demand relating this to greater uncertainty about domestic economic conditions. The upcoming NI rise was also stated to have led customers to clamp down on spending.

Overall input prices rose at their sharpest pace since August 2023, with both services and manufacturing recording a steeper rate of inflation than in December.

Judith Cruickshank, who chairs the Scottish board of Royal Bank of Scotland, said: “Scottish firms reported a leap in costs and prices at the start of 2025, just as the Bank of England raised its inflation forecast to 3.7%.

“Pricing pressure shot back up to levels last seen in the summer of 2023, according to respondents, with energy costs and rising employment costs all playing a role.

“Nevertheless, businesses said it wasn’t a worsening situation for output, with Scotland’s activity score recovering.

“But uncertainty over the state of demand in future is clearly playing a role, even though firms in Scotland appear to have stronger expectations for the labour market than many other parts of the UK.”