Scottish private sector business optimism has strengthened “markedly” to a 43-month high, according to the latest Bank of Scotland Purchasing Managers’ Index (PMI).

“Activity in the Scottish private sector returned to expansionary territory in January, following a contraction at the end of 2017,” said the PMI report.

“Broad-based expansions were observed in both employment and new orders.”

The seasonally adjusted headline Bank of Scotland PMI –– a single-figure measure of the month-on-month change in combined manufacturing and services output — registered at 50.3 in January, from 49.4 in December.

Although the pace of output growth was marginal, it was an improvement from the slight decline in December.

Order book volumes expanded across the Scottish private sector in January.

New business inflows rose markedly in the manufacturing sector, supported by new customer wins and renewed export growth.

In the service sector, panellists reported that successful tendering had contributed to higher order intakes.

Greater staff levels enabled Scottish private sector firms to clear outstanding business.

Firms took advantage of stronger demand and raised output prices in January.

In fact, selling charges were increased to the sharpest extent in five months.

That said, input cost inflation outstripped that of output prices to a marked degree, thereby signalling a squeeze to private sector profit margins.

Cost pressures intensified in January to a nine-month high.

“Lastly, fresh expansions in new business and output coincided with greater private sector business confidence during January,” said the report.

“Moreover, the degree of optimism strengthened to a 43-month high.”

Fraser Sime, Regional Director, Bank of Scotland Commercial Banking said: “Scotland started 2018 with renewed private sector business activity growth, according to the latest Bank of Scotland PMI data.

“The upturn was led by manufacturers, while service providers signalled a fractional decline in output.

“Both new business inflows and employment increased in the Scottish private sector, fuelling stronger business confidence.

“The degree of optimism in the future rose to a 43-month high in January.

“With improved demand conditions, firms raised prices for an eighteenth straight month.

“That said, input cost inflation remained far greater than that of selling prices, indicating tighter profit margins.”

The Bank of Scotland PMI is produced by IHS Markit.

The report features original survey data collected from a panel of around 500 companies based in Scotland and operating in both manufacturing and service sectors.