Scottish financial services 'in recession'

The sector output fell by 3.4 per cent in the third quarter of last year according to Scottish Government statistics.

This takes the fall from the peak in the first three months of 2007 to more than 6 per cent "and technically putting it into recession", claims the Centre for Public Policy for Regions.

The tourism sector has also been hit, with a 1.3 per cent fall in hotels and catering in the third quarter.

The figures on the financial sector are set to spark fresh controversy over the accuracy of economic data from St Andrew's House as the real impact of the credit crunch is not thought to have impacted until well into the final quarter of the year.

This would seem to be borne out by ONS figures showing the financial sector across the UK continued to grow by 6 per cent over the same period.

Owen Kelly, chief executive of Scottish Financial Enterprise, said: "Talk of us being in recession is nonsense.

"There must be questions about the way these figures are put together and the government is involved in discussions on this.

"The biggest weightings in this sector would seem to be net interest income and fee and commission income, and I am wondering whether there may be a weighting problem."

Overall, Scotland's Gross Domestic Product rose by 2.1 per cent over the year to the end of the third quarter, down from 2.3 per cent in the year to the second quarter. Over the year to end September, UK GDP rose by 3.2 per cent, though the pace slowed in the final quarter taking annual GDP growth to 3.1 per cent. The Finance and Economy Secretary, John Swinney, below, commented: "Positive growth is always welcome, but the Scottish economy can do better.

"The quarterly decline in financial services is evidence that – like economies across the world – Scotland will be affected to some degree by events in the US and the global economy. These conditions will inevitably present new challenges."

The figures show the service sector in Scotland grew by 0.7 per cent in the third quarter, with retail and wholesale up 1.8 per cent, property and business services up 1 per cent, hotels and catering down 1.3 per cent and financial services down 3.4 per cent.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said the figures "demonstrate that our economic growth rate became more shallow as we entered the second half of 2007."

She continued: "The Scottish economy continues to lag behind the UK as a whole, making the Scottish Government's target of matching UK growth levels by 2011 a challenging ambition.

"It is time for our governments at Holyrood and Westminster to act quickly to tackle the cost of doing business in Scotland by reducing business rates at a single stroke in April, taking urgent action to streamline our planning system and refraining from the planned increases in Fuel Duty."

And CBI Scotland's director, Iain McMillan, said: "It is a pity that the rate of growth appears to have wilted slightly in the third quarter of last year, to 2.1 per cent.

"The challenge will be to sustain even this modest level of growth let alone improve on it, given the genuine concerns about the health of the UK economy."

John McLaren of the CPPR said: "The Council of Economic Advisers' views should be recorded on problem areas like hotels and catering and financial services."

SEESAW CONTINUES TO ROCK

IT WAS another rollercoaster day for markets yesterday as UK shares rallied in early trading before falling back sharply by the end of the day.

Wall Street, meanwhile, pulled off a stunning comeback last night, surging higher in late trading and wiping out what looked to be yet another precipitous decline. The Dow Jones Industrial Average, down more than 323 points in earlier trading, ended the day with an advance of just under 300 points.

The FTSE closed 2.3 per cent lower at 5,609.3 after seesawing throughout the day. The index hit a low of 5,518 early in the afternoon – 3.9 per cent down on its opening level.

European shares also dropped sharply despite sharp rises in Asia overnight as investors digested the US Federal Reserve's dramatic interest rate cut.

In Europe, markets closed at their lowest level in one and a half years, driven by a slump in energy stocks and a sharp fall back in the oil price below $87 on recession fears.

Across the Atlantic, the Nasdaq earlier crossed the threshold that signals a bear market for the second day running, which is defined as falling 20 per cent or more from a recent closing high before it also rallied to finish more than 1 per cent ahead.

The Dow Jones and S&P 500 were each down more than 2 per cent before a mid-afternoon rally preceded the stunnin g late comeback.

Investor concerns darkened with news that economic activity shrank in nearly half of the states in December. Data from the Philadelphia Federal Reserve showed a decrease in 23 states last month, while growth was stagnant in seven other states.

And there was little cheer from the latest figures on the US budget deficit, now set to jump to about $250 billion.