Economic recovery in Scotland set to slow

The latest data subsequently points to a slowdown in economic growth in the final quarter of the year.

A key driver of economic growth remains low interbank lending rates which, despite creeping up in recent months, remain at historically low levels, and will help incentivise investment.

New order levels are also rising, which continues to increase capacity pressures, notably in the manufacturing sector. This is borne out in firms demand for staff, which has improved in each of the past eight months.

However, the latest data flow highlights looming headwinds facing the recovery. Historically low interest rates are yet to stimulate new housebuilding activity and consumers remain markedly pessimistic with regards to current economic conditions. Inevitably, consumers are reluctant to purchase big ticket items, highlighted by declining new car sales in June and July. Weakening business sentiment is also dampening the outlook for the economic recovery over the remainder of the year.

Donald MacRae, chief economist at Bank of Scotland, commented: "The Scottish economy emerged from recession at the end of 2009 but growth then stalled in the first three months of this year.

“The Bank of Scotland PMI showed that the Scottish private sector has been growing for thirteen successive months, beginning in July of last year.

"This latest update of the Index of Leading Indicators shows the tentative recovery slowing in autumn as both consumer and business confidence continue to be dented by widespread concerns over the effect on jobs and contracts of future cuts in government spending.

"Growth may be reduced but not extinguished. Manufacturing continues to display robust growth and an equally robust expansion of exporting activity. Travel, tourism and leisure growth outstrips business and financial services.

“However the uncertainty caused by concerns over government spending cuts can only be dispelled by clarity on their scope, extent and size - the sooner the better."