UK's economy is heading for a soft landing

The UK's economy is heading for a soft landing, despite predictions of a global slowdown after the credit crunch according to a new report.

The Royal Bank of Scotland’s regional purchasing managers’ index, a quarterly survey of the performance of businesses around the country, shows that 11 of the 12 regions into which the bank divides the UK actually expanded during the first three months of the year.

Only Northern Ireland dipped into negative territory and Andrew McLaughlin, RBS's chief economist, said the research suggested a "soft landing in the UK."

However, he warned that the data showed continuing inflationary pressures, which could give the Bank of England's Monetary Policy Committee pause for thought as it considers further base rate cuts following last week's 0.25 percentage point reduction.

"Input prices rose with business pointing the finger at the usual suspects of higher energy prices and a strong euro. More worrying is that rising labour costs were also cited. Output prices continue to increase, although inflation is likely to weaken in the medium term as demand softens," he said.

Employment over the UK as a whole had shown a modest increase during the first quarter, although job losses were registered in several regions.

Only Northern Ireland showed a decline in business activity, while businesses across the country said that new work was continuing to come in. However, backlogs of work have fallen in almost every region, suggesting that new work is not coming in at a sufficient rate to keep staff fully occupied.