Demand for Scottish goods and services in July deteriorated at the fastest pace for nearly four years, according to the latest Bank of Scotland/Markit purchasing managers’ index (PMI).
However, employment levels stabilised, ending seven months of job cuts.
The report said Scotland’s private sector experienced a downturn at the start of the third quarter, with output returning to contraction territory.
It said the decline stemmed from a drop in new business intakes, the sharpest reported for 47 months.
The seasonally adjusted headline Bank of Scotland PMI — a single-figure measure of the month-on-month change in combined manufacturing and services output — fell to a four-month low of 49.2 during July, down from 50.5 in June.
The report said the return to contraction territory was broad-based across manufacturers and service providers as both recorded declines in their business activity.
July’s decline ended a three-month period of growth.
New order volumes at goods producers contracted at the sharpest rate since September 2012, but the slowdown in new business levels in Scotland’s service sector fell at slower pace.
The report said Scotland’s private sector companies left their selling prices broadly unchanged during July, having lowered them marginally in June.
Meanwhile, the latest survey data highlighted a further increase in average costs in Scotland’s private sector economy.
The rise continues a trend first noticed in February.
Graham Blair, Regional Director, SME Banking Scotland said: “The start of the third quarter was challenging for Scottish private sector firms, as declining demand conditions knocked the economy back into contraction during July.
“New business levels fell at the sharpest pace for nearly four years, with the decrease across both manufacturers and service providers.
“However, it is encouraging to see employment levels stabilise.
“Following the outcome of the EU Referendum it is still too early to understand the full impact for businesses across Scotland but we are ready to support them so that they are well positioned to meet any challenges ahead.”