A downturn in Scotland’s big services sector offset strong manufacturing production growth in March as the Bank of Scotland Regional Purchasing Managers’ Index (PMI) report showed Scotland’s private sector economy broadly stagnated during the month.

However, the report said the Scottish economy is likely to return to growth heading into the second quarter.

“The economic upturn of Scotland’s private sector economy lost momentum at the end of the first quarter,” said Fraser Sime, regional director, Bank of Scotland Commercial Banking.

“A muted demand for goods and services resulted in only a marginal increase in new business inflows, which in turn caused activity levels to broadly stagnate.

“The overall message is more balanced, however, as businesses created jobs over the month and sentiment remained broadly positive.

“These developments suggest that the Scottish economy will likely return to growth as we head into the second quarter.

“Looking at the detailed sector numbers, we can see that manufacturers performed better than their services counterparts, with factory production still rising at a pronounced rate, but services activity dipped for the first time in four months.”

Although companies retained a degree of optimism regarding future activity, continuing levels of spare capacity meant that employment levels barely changed.

The seasonally adjusted headline Bank of Scotland PMI slipped to a reading of 50.1 in March, down from February’s 19-month high of 51.7.

Manufacturing output continued to rise considerably but this was broadly offset by a modest reduction in service sector activity.

The March data signalled continued steep inflation of input prices, albeit the lowest in six months.

“Firms, particularly those in the manufacturing sector, commonly reported that unfavourable exchange rates had led to an increase in input costs,” said the report.

“Higher wages were also reported to have pushed up operating expenses.

“Firms continued to respond to higher operating costs by increasing their own charges.

“Although the degree of inflation was the lowest of the year so far, it remained notable.”