The seasonally adjusted headline Royal Bank of Scotland Business Activity Index - a measure of combined manufacturing and service sector output - rose from 57.5 in July to 58.1 in August, signalling a steep rise in activity amid a further sharp increase in new work, with the rates of growth remaining close to May’s respective survey highs. Moreover, Scotland registered the fastest expansion in output across the 12 monitored UK areas in August.

As a result, companies continued to take on additional staff for the fifth month running, with the rate of job creation remaining sharp despite easing. Inflationary pressures were again severe, however, as costs rose at one of the steepest rates on record amid reports of higher material, fuel, transport and wage costs, with manufacturers particularly hard hit.

August pointed to a further uplift in client demand facing Scotland’s private sector firms. New business expanded for the fifth time in as many months, amid reports of stronger sales due to the easing of lockdown restrictions and resumption of international travel. The rate of growth in new work picked up slightly on the month and remained close to May’s high.

At the sector level, the upturn was broad based, with service providers again recording a much quicker increase in new business.

Scottish private sector companies remained highly optimistic of greater business activity in 12 months’ time during August. Confidence was attributed to looser lockdown restrictions, strong demand conditions and hopes of a robust economic recovery. Sentiment moderated to a seven-month low, but nonetheless remained elevated in the context of historical data.

A fifth successive monthly rise in workforce numbers at Scottish private sector firms was recorded in August, amid reports that companies were expanding their staffing levels to keep up with demand. The rate of job creation slowed further from May’s peak, but was still among the fastest on record and sharp overall.

Across the monitored sectors, services firms recorded a quicker upturn in employment for the fourth month running.

August data highlighted further signs of capacity pressures at Scottish private sector firms, as the level of outstanding business increased again. Logistical problems, material shortages, and a lack of staff were attributed through anecdotal evidence to the latest rise. The rate of accumulation was the slowest since April, when the current sequence of rising backlogs began.

Moreover, Scotland registered the slowest rate of backlog accumulation across the 12 monitored UK areas during August.

Private sector firms across Scotland recorded further intense cost pressures during August. Input prices rose for the fifteenth straight month and at steepest pace since January 2011. Material shortages, price hikes at suppliers, greater fuel and wage costs, Brexit and COVID-19 were all cited by respondents as drivers of inflation. Goods producers continued to record a far steeper rate of increase than services firms during August.

That said, across the 12 monitored UK areas, only London saw a slower pace of input price inflation than Scotland in August.

In response to greater input costs, Scottish private sector firms continued to raise their average charges during August. The rate of inflation slowed from July’s peak, but was still the third-quickest on record and rapid overall.

Average charges also rose across the UK as a whole during August. The rate of increase was broadly similar to that in Scotland.

Malcolm Buchanan, chair, Scotland Board, RBS, commented: “August data pointed to a further rapid expansion of Scotland’s private sector economy, with the rate of growth re-accelerating from July and outpacing the UK as a whole by a wide margin. Services continued to record a faster upturn than manufacturing, although the differential narrowed slightly.

“Inflows of new work increased sharply again, as looser lockdown measures continued to boost client demand and, as a result, firms took on staff for the fifth month running.

“Overall, the latest PMI data signals another strong performance for the Scottish private sector. Inflationary pressures remain a concern, but do not seem to be hindering the economic rebound as growth remains close to the survey record pace seen in May.”