Scotland's private sector economy has shrunk for the first time in five years amid a sharp slowdown triggered by the global credit crisis and soaring raw material costs driven by rocketing oil prices.

At the same time, the British Chambers of Commerce yesterday warned that the outlook for the UK economy as a whole was growing worse and the Bank of England must act to stop a major downturn.

The latest edition of the closely-watched Purchasing Managers Index, compiled by Royal Bank of Scotland, reflected the impact in April of the toxic economic cocktail of record-busting cost inflation and sharply declining new business on the economy north of the border.

The survey index for overall Scottish private-sector output fell to 48.3 last month, down from 51.4 in March. A read- ing above 50 denotes expansion, a sub-50 score marks contraction.

This latest PMI provides the most stark evidence yet that Scotland is far from immune to the economic slowdown in the US and much of Europe, and that specific evils such the global credit crisis, surging oil prices and the UK housing slowdown have already begun to gnaw at the economy north of the border.

Meanwhile, the British Chambers of Commerce also warned that the economic slowdown will be more prolonged than previously thought, with consumer spending remaining weak until the end of 2009.

It said the Bank of England, which last week left interest rates on hold at 5%, must be more "pro-active" in countering the threat to growth and business prospects.

The BCC warned against undue caution by the Bank of England in the face of the worsening economic prospects.

"The longer the Monetary Policy Committee waits now, the bigger the danger that the situation would deteriorate and the policy choices would become more difficult and more unpleasant later in the year," said David Kern, the BCC's economic adviser.

Nonetheless, in one of the most ominous reports in recent times, Scottish companies revealed fast-deteriorating market conditions and weakening consumer confidence in the face of the ongoing credit crunch, surging prices for oil, food and other commodities, and rising utility bills.

David Fenton, Royal Bank of Scotland's head of microeconomics, said: "Scotland made a disappointing start to the second quarter, with a broad-based decline in business activity and the highest cost inflation since records began."

The price of crude oil on Friday climbed above $126 a barrel for the first time, taking its advance last week to nearly $10.

Higher energy costs hurt businesses and consumers alike, and add to the woes of economies already smarting from a housing slump and a financial crisis.

Some economic theorists have argued that higher energy prices discourage consumers from spending on other products, which in turn slows growth.

Many companies are also at the mercy of rising fuel charges and materials costs related to the petrochemical industry, and it is these firms that continue to feel the sharpest edge of the rises.

With no indication that oil and commodities prices are going to ease in the near future, the report points to tough times for almost all the key areas in Scotland's private sector economy.

The PMI noted that inflation in firms' input costs hit a new survey high - although Scotland registered a weaker rate of input price inflation than many other areas of the UK during the latest survey period.

Fenton added: "Energy, metal and food prices were all in the ascent."

Overall output in Scotland's private sector declined for the first time since June 2003, the survey revealed.

Broad sector data signalled concurrent falls in output in manufacturing and services in April for the first time since May 2003.

Manufacturers registered a slightly sharper rate of decline in output than service providers, the survey revealed.

However, the PMI noted that within the services sector, firms in the business services sector saw a particularly sharp fall in activity.

In both broad sectors, firms reported that falling new business volumes had driven output lower in April.

The PMI figures contrast with the robust picture painted by the Scottish Government, whose latest data revealed that the economy north of the border grew by 0.9% in the fourth quarter of last year - way ahead of its long-term average and beating a UK-wide advance of 0.6% - enabling above-trend growth of 2.2% for 2007 as a whole.

Nonetheless, while the latest gross domestic product data from the Scottish Government signalled the economy was in fine form going into 2008, business leaders highlighted the challenge ahead as the UK and global economy suffer a sharp slowdown triggered by the global credit crisis.

The one bright spot in today's PMI report was the fact that output prices also rose sharply - a signal that companies retain a reasonable degree of pricing power.

However, rising output inflation feeds into retail price inflation, in turn causing bigger headaches for the Bank of England's Monetary Policy Committee.

As it stressed that a UK recession remained "unlikely", the BCC said the next 18 months would be "difficult and risky" and called on the government to provide extra support to small firms.

Meanwhile, the volume of outstanding business in Scotland's private sector economy declined for the eighth month running in April and the rate of decline was the sharpest since June 2003.

Adding insult to injury, total private sector employment in Scotland fell for the first time in more three years, reflecting a contraction in service sector jobs, which offset a slight expansion in manufacturing.