The latest Royal Bank of Scotland Purchasing Managers Index (PMI) data shows that that contraction across Scotland’s private sector firms deepened during October.
The report’s Business Activity Index posted below the neutral 50.0 threshold for the third month running, at 45.8, indicating a sharp decrease overall.
Inflows of new business also went into further decline, the latest downturn being the most severe in 20 months.
Further, inflationary pressures reaccelerated from September’s recent low, as service providers reported quicker upturns in input costs and charges during October.
However, employment across the Scottish private sector expanded for the 19th month running in October.
But the gloomy performance resulted to the softest intake of workers in 18 months, with goods producers reporting their first reduction in employment since January 2021.
New business received at Scottish private sector firms fell sharply during October.
The rate of decrease quickened from September to the fastest in the current fourth-month sequence of reduction.
Of the two sub-sectors, manufacturing firms reported the steeper downturn.
Companies noted that looming recession, economic uncertainty and the cost of living crisis weighed on client activity.
The downturn in incoming new business across Scotland outpaced the UK- wide average.
Output expectations for the year ahead across private sector firms in Scotland strengthened in the three months to October.
The increase in confidence was underpinned on planned expansions and investment, with firms also hopeful of future economic stability.
Judith Cruickshank, Chair, Scotland Board, Royal Bank of Scotland, said: “The Scottish private sector reported a third month of contraction during October.
“The downturn in activity quickened on the month, as stubbornly high inflationary pressures, the ongoing cost of living crisis and a threat of recession deterred growth. New orders received at firms also fell further.
“Employment trends across the sector indicated a slowdown in hiring activity over the recent months. The latest upturn was the joint-softest in the current 19-month sequence of expansion.
“At the same time, the level of outstanding business also fell at a much sharper rate. The data thus suggesting the further weakness in the labour market will not be surprising.
“As we proceed into the final quarter of the year, market conditions are set to become more challenging. The aggressive interest rate hikes, the decline in the value of sterling against the dollar and the rebound in post-COVID demand phasing out, all amidst the ongoing cost of living and energy crises, all point to an extremely difficult period for Scotland.”