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Private sector business activity in Scotland in the second quarter rose at its quickest rate since August 2014, according to the Royal Bank of Scotland’s PMI Index.

The inflows of new work rising at the fastest pace in almost four years prompted firms to hike employment markedly.

Backlogs of work were accumulated for the first time in three-and-a-half years despite the higher private sector head count due to strong demand.

Increased labour costs were reported to have intensified cost pressures but output prices were raised to a softer degree.

The seasonally adjusted Royal Bank of Scotland PMI increased to 54.5 in June, from 53.7 in May to signal the strongest expansion in private sector output in Scotland since August 2014.

The figures also show that growth across both the manufacturing and service sectors continued.

Those surveyed linked the upturn in business activity to improved demand. New business increased solidly in June with the pace of growth quickening to a 47-month high.

They reported increased sales to both new and existing clients. But that said June’s increase in Scotland was weaker than that seen for the UK as a whole for the first time since March.

In an effort to boost output capacity, employment was expanded in June to the greatest degree in 52 months and in fact the rate of job creating in Scotland noticeably outpaced that for the UK as whole.

Selling charges were increased for the 23 straight month in June, with inflation remaining broad based across both the goods and services sectors.

Malcolm Buchanan, chair of the Scotland board of Royal Bank of Scotland, said: “Private sector output growth continued to gather momentum as the second quarter ended, with the pace of expansion quickening for the third straight survey to reach a 46-month high.”

Nicholas Stamenkovic, economist with Royal Bank of Scotland, said: “Business activity improved noticeably in June, continuing the recent encouraging trend as demand jumped to a four-year high particularly in the service sector.”