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Economic recovery in Scotland 'set to slow'

image captionLow interest rates have yet to stimulate new housebuilding activity, says the report

The recovery under way in the Scottish economy is set to slow at the end of the third quarter after hitting a peak in July, according to new bank data.

The Bank of Scotland index of leading indicators suggested a slowdown in economic growth in the final quarter of the year.

The report said low inter-bank lending rates would encourage investment.

But it added low interest rates had yet to stimulate new housebuilding activity and consumers remained pessimistic.

The bank said inter-bank lending rates, despite creeping up in recent months, were still at historically low levels and remained a key driver of economic growth.

New order levels were also rising, notably in the manufacturing sector, which meant that manufacturers would need to raise output to satisfy higher demand.

But the report said there were "looming head-winds" facing the recovery, including consumer pessimism.

Cuts concern

Consumers, it argued, were reluctant to purchase big-ticket items, as highlighted by declining new car sales in June and July.

Donald MacRae, chief economist at Bank of Scotland, said the latest data showed the tentative recovery slowing in the autumn as both consumer and business confidence continued to be dented by widespread concerns over future cuts in government spending.

He continued: "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."

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