Scots economy 'grinding to halt'

The study said the service sector had been badly affected The view from the 'real world'

The Scottish economy is "grinding to a halt" as the effect of the credit crunch takes hold, according to an assessment from Lloyds TSB Scotland.

The bank's business monitor said the country had been affected by slowing output and increasing costs.

It added this had led to some of the poorest business results the monitor had ever recorded.

The report said expectations of increasing turnover in the next six months "have slumped".

LLOYDS TSB BUSINESS MONITOR Full report and charts [28KB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here

A Lloyds TSB Scotland spokeswoman said: "The latest monitor shows growth in the Scottish economy grinding to a halt in the summer of 2008.

"This is the first time in the history of the business monitor that expectations have been largely negative."

In the three months to the end of August, the monitor said 39% of Scottish firms reported a decrease in turnover, while 29% reported an increase.

That gave an overall net balance (those companies reporting an increase minus those reporting a decrease) of -10%, "down significantly" from the previous quarter's figure of 11%.

Lloyds TSB Scotland said the service sector had been particularly badly affected, with businesses reporting a net balance of -20%.

Although production was also experiencing a slowdown it continued to grow with a net balance of 6%.

Peter Hughes is chief executive of Scottish Engineering, the trade body for manufacturers. In his view the situation is not "as bad as it's being made out".

In an interview for BBC Radio Scotland's Good Morning Scotland programme he said: "The Scottish economy is not going to be immune to global pressures, that's the first thing we've got to appreciate.

"But...over the past four or five years lots of companies in and around Scotland...have actually made themselves, leaner and meaner and fitter than they otherwise would have been so they're better placed than they would have been."

'Reduced growth'

But economists said the volume of new and repeat business had slumped in the service sector in the last three months.

Professor Donald MacRae, chief economist at Lloyds TSB Scotland, said: "The Business Monitor shows the Scottish economy feeling the effects of the credit crunch, with slowing output, increasing costs and falling expectations to produce the most pessimistic assessment of future prospects in 10 years.

"After above trend growth in 2007, the Scottish economy is facing reduced growth in 2008."

But he told BBC Radio Scotland that he did not expect Scotland to go into recession.

Reacting to the report, the Scottish Conservatives said the figures showed that Scotland was "not immune from the legacy of Gordon Brown and his failure to save for a rainy day".

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