The Scottish business sector saw growth in January, as Scotland moved from 11th to sixth place in in terms of economic performance across all UK regions.

This is according to the Royal Bank of Scotland Growth Tracker, a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors.

The Tracker found that Scottish business performance rose from 46.9 in December to 49.6 in January, offering some signs of optimism for Scotland’s business sector in 2025.

The softer contraction in private sector output was driven by a renewed uplift in services activity but partly offset a further decline in manufacturing production.

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.

Scottish 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.

“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%,” Judith Cruickshank, chair, Scotland board, Royal Bank of Scotland, said.

“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.”

Positively, Scotland’s rank out of the 12 monitored nations and regions rose from eleventh to sixth in January.

While the contraction in order book levels was consistent with the UK trend, it was comparatively stronger in Scotland. Total sales across the UK feel mildly for the second month running.

The outlook for activity remained subdued in January, picking up only slightly from December’s two-year low.

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Firms highlighted greater inflation risks due to wage cost increases, which many feared would lead to a drop-off in sales and a weaker economic climate.

Again, business confidence was much lower than the UK trend, despite the latter slipping ot the lowest level since December 2022.

Anecdotal reports suggested a reduction in new orders and increased cost pressures where the main factors leading firms to streamline their workforces. However, there were some respondents that replaces staff or added extra working hours to support growth prospects.

Spare capacity across the private sector remained evident in January. Backlogs of work feel at the strongest pace for six months, albeit less marked than seen nationwide. Companies mostly linked a drop in work-in-hand to lower sales.

Services companies associated higher costs with an increase in wages, as well as heightened prices for energy, fuel, and technology. Goods producers typically cited an uplift in supplier chargers, which in turn was often due to a markup in payroll costs.

These upticks underscored an increase in average prices charges, as many firms commented that they had raised their prices in January. Overall, charges rose sharply, with the rate of inflation quickening to a nine-month high.

For both input and output prices, inflationary pressures were slightly less marked in Scotland compared to the UK average.